Thanks to significant changes in 2008 and 2009, in addition to dependable, long-standing tax planning strategies, you now have many different approaches to help your clients defer their taxes and save this year and for years to come. Here are some discussion points your clients will be grateful you raised:

Retirement income

In June 2009, the federal government announced significant changes to how the Canada Pension Plan (CPP) will be paid out to Canadians. Effective January 2012, your retiring clients will no longer have to prove that they’ve stopped working in order to receive CPP benefits. This new rule could be beneficial to seniors who ease slowly into retirement through part-time and consulting work.

The collection of CPP benefits will continue to be available as early as age 60 and as late as age 70. But the recommended changes will reduce benefits received prior to age 65 by 6% per year as opposed to the current 5%. They will also increase benefits received after age 65 by 7% versus 5% beginning January 2011 for those selecting later retirement, and starting January 2012 for those selecting earlier retirement.

Until January 2012, though, it’s still a good idea that clients select earlier retirement whenever possible. After that, the decision to apply for CPP early and accept the lower income should be based on other factors such as whether your client needs the income to cover lifestyle expenses and longevity in their family.

Corporations and income splitting

Small business deduction increase

The 2009 federal budget increased the small business deduction to $500,000 from $400,000. Several provinces have also raised their deduction limit to match. The increased deduction increases the amount of business income earned by Canadian-controlled private corporations that can be taxed at lower rates.

Salary to spouse can increase retirement income

Many corporation owners already take advantage of the ability to split income by paying their spouse a salary. Encourage your client to take further advantage of this opportunity by increasing their spouse’s salary to the Yearly Maximum Pensionable Earnings (YMPE), which this year is $47,200. This simple step will increase the spouse’s opportunity to earn the maximum available CPP income in retirement as well as the higher RRSP contribution room created by the extra income.

Personal and corporate savings

When the higher-income-earning spouse owns a holding company and makes the majority of the income, he or she should plan ahead for income splitting in retirement. Maximizing contributions to the lower-income spouse’s spousal and personal RRSP while saving the balance to the holding company (owned solely by the higher-income-earning spouse) will allow for tax-deferral and reduced taxation pre-retirement. Retirement income from the corporation will be attributed to one spouse and Registered Retirement Income Fund income can be attributed to the other, allowing for reduced individual taxation.

Loans to family members

The CRA’s prescribed interest rate for family loans fell to 1% in April 2009 and continues to cruise at a low altitude (rates change every quarter, so look these up). Locking in a family loan at this low rate and thereby shifting income earned on the investment of these funds to a spouse or other family member—including a minor child—who has little or no other income could provide significant tax savings for your clients. Ensure that any loan is governed by a written agreement outlining repayment terms as well as the interest rate at the time of the loan to ensure attribution rules do not apply.

Tax credits and grants

First-time Home Buyers’ Tax Credit

Worth up to $750, this credit applies to all homes purchased after Jan. 27, 2009. The credit is calculated by multiplying the lowest personal income tax rate by $5,000. The first-time home buyer (and spouse) must not have owned a home for any of the four preceding years. If the home buyer qualifies for the Disability Tax Credit (DTC), they do not have to meet this rule to qualify for the credit.

Energy retrofit program

Are your clients going “green” at home? Cash grants are available to homeowners making eco-friendly renovations to their residences. The annual grant (up to $5,000 with a lifetime maximum of $500,000) is based on the effectiveness of the upgrade—not the cost. The home must be assessed by a certified Natural Resources Canada energy advisor in order to be eligible. Check out www.ecoaction.gc.ca for more information.

Public transit passes

A non-refundable, eco-friendly tax credit is available for dedicated public transit riders. Total annual costs for travel passes of one week or longer are multiplied by the lowest personal tax rate to calculate the credit.

Capital losses

The recent economic turmoil may provide a tax-savings opportunity. Capital losses in stock portfolios may allow your clients to claim back some of the taxes they paid on capital gains in sunnier times.

Transfer of unused tax credits to spouse

Some non-refundable tax credits can be transferred to a spouse if your client is unable to claim them. They should not allow those credits to go to waste. Transferring the credits for age amount, pension income amount, disability amount, and tuition and education amounts to a spouse will maximize the tax savings available to the whole family.

Tax-efficient accounts

Open a Registered Disability Savings Plan

The Registered Disability Savings Plan (RDSP) provides individuals with disabilities, and their family members, the opportunity to save in a tax-deferred environment. Like a Registered Education Savings Plan (RESP), the RDSP tax-shelters the invested funds until withdrawal. Anyone eligible for the DTC may establish an RDSP. Parents and guardians can establish RDSPs on behalf of minor children. The maximum lifetime contribution limit is $200,000, but there is no annual contribution limit. The Canada Disability Savings Grant and the Canada Disability Savings Bond provide additional contributions to RDSPs for those who pass the income tests. More information on this useful plan is available at www.rdsp.com and www.plan.ca.

RRSPs and spousal RRSPs

You know them and you love them. The RRSP may be a comparatively old dog, but it’s loyal and dependable. Encourage the higher-income-earning spouse with the greatest contribution room to contribute to a spousal RRSP. While some advisors are forgoing this step since the federal government has allowed income splitting on RRIF income, one never knows when a tax law could be repealed. Save your clients possible grief in their retirement years by thinking ahead.

Tax-Free Savings Accounts

Maximum annual contributions are $5,000, with no lifetime limit. While contributions are not tax-deductible, the growth is tax-sheltered and funds from the account can be withdrawn tax-free at any time. What’s best is that withdrawals create new contribution room the following year; with an RRSP, if the client’s contribution is used, it’s gone, regardless of withdrawals. Withdrawals will also not affect eligibility for federal tax credits or income-tested benefits, something seniors who benefit from pension income credits and Old Age Security will want to be aware of.


  • Cindy David, CFP, CLU is president, Estate Planning Advisor, with Cindy David Financial Group Ltd. Statistics, factual data and other information in this article are from sources CDFG believes to be reliable but their accuracy cannot be guaranteed.