“Welcome to the PlanEasy blog! We make personal finance easy.
Thanks for visiting.”
– Owen
Different Ways to Split Income With A Spouse
Splitting income is an interesting tax planning opportunity for couples. Because we’re taxed individually on our income it can be advantageous to split income and reduce the overall income tax bill for the household.
The goal of income splitting is to perfectly split the household income and the corresponding tax bill. Splitting income 50/50 is the ideal way to minimize the household’s income tax. However, the CRA doesn’t like this, and there are lots of rules in place to prevent income splitting in certain situations.
Income attribution is what happens when you split income that you shouldn’t have. Even if you didn’t earn that income it can still be attributed back to you and needs to be captured on your annual tax return.
For example, if the higher-income spouse gives the lower income spouse $10,000 to invest, any income earned on that investment is attributed back to the higher income spouse, even if it doesn’t get paid into their account and/or they don’t receive a T5/T3 tax slip.
Income attribution is a huge deal. It requires people to properly report their income. The onus is on the couple to split their income properly. If a household doesn’t properly split their income, and they fail to report income attribution, it can come back later in the form of an audit and/or fines & penalties.
The goal with income splitting is to avoid these attribution rules and legally split income to the extent it’s possible.
Income splitting isn’t for everyone but many people can benefit from at least some basic income splitting.
Canada Pension Plan (CPP) Is Expanding! And That’s Going To Make Retirement Easier
The Canada Pension Plan is expanding this year and that’s going to make retirement easier in the future. This expansion is part of a multi year effort to increase the size of CPP payouts in the future. The increased CPP benefits will make retirement easier for many people. It will mean less personal savings are needed for retirement and if you continue to save at the same rate as today you might actually be saving too much!
CPP is one of the best pension funds in the world. Actuaries have stated that CPP is solvent for 75+ years. That means anyone contributing to CPP now has very little to worry about when it comes to future CPP payments.
Despite Canada Pension Plan being one of the best pension in the world I still come across comments from people who are negative about CPP and OAS. They prefer not to count these retirement pensions in their financial plans. Instead they prefer to save more for retirement.
While I understand the desire to be prudent, this line of thinking makes things more difficult than they need to be. Retirement pensions like CPP and OAS provide an enormous amount of retirement income and ignoring them just means you have to save more.
Ignoring CPP and OAS is like running in a windstorm with a parachute tied to your back!
Why add that extra resistance when it’s already hard enough to save for retirement?!?
The good news for many people is that CPP enhancement will now fund even more of their retirement. Future CPP payments will make up an even higher % of retirement income. Before CPP reform the original goal for CPP was to cover 25% of earnings (up to the max) but with CPP enhancement the goal is to increase this to cover 33% of earnings (with a higher max too!). The result is that CPP payments will be up to 50% higher in the future!
This expansion will happen in two phases and the impact on your financial future will depend on how much you’re earning today and how long you’ll contribute under the new rules.
Unfortunately, if you’re retiring this year you won’t see much of an increase. But if you’re retiring in the next 5, 10, 20+ years you’ll likely see your CPP payments increase anywhere from $1.44/month up to $500+/month depending on timing and contributions! That’s an extra $6,000+ per year at age 65 or $8,500+ per year if delayed to age 70! And double that for couples!
The new Canada Pension Plan expansion won’t impact everyone equally, some people will gain more than others. Let’s look at the two phases of the expansion and how it will impact us.
What Does It Take To Become A Millionaire? About 11.1 Percent
What does it take to become a millionaire? Surprisingly, not much, as long as you follow certain principles…
There’s something alluring about being a millionaire. Becoming a millionaire is not a traditional financial planning goal. There’s absolutely no reason to aim for a round $1,000,000. In fact, $1,000,000 might be too much! But there’s something appealing about it, alluring even. It could be the simplicity. It could be the many references to millionaires in movies, tv, music and social media. I have to admit, there’s just something interesting about having a 7-figure net worth.
Becoming a millionaire isn’t too difficult, if you start early enough and follow some basic principles. It’s a formula that’s been proven to work time and again.
So, what does it take to become a millionaire household in Canada? About 11.1%.
By using the right accounts, you can invest your way to $1,000,000 pretty easily, all it takes is time and discipline. The average household income in Canada is around $94,833 per year based on research by Statistics Canada and adjusted for inflation. That means to become a millionaire household by the time you hit retirement at age 65 you need to save about 11.1% per year. That’s it.
If you can save 11.1% of your gross household income from age 25 to age 65 you have a good chance of becoming a millionaire. And this is a million in today’s dollars. With inflation, you’ll actually have over $1.6M in future dollars.
This might be a bit lower during the beginning of your career when your income is lower, and it might be a bit higher later on when your income is higher. But by saving 11.1% of your income per year you should have a reasonably good chance of becoming a millionaire!
The key is to start early, be consistent, avoid unnecessary fees, and avoid the many mistakes investors tend to make.
Owen Winkelmolen
Advice-only financial planner, CFP, and founder of PlanEasy.ca
“Welcome to the PlanEasy blog! We make personal finance easy.
Thanks for visiting.”
– Owen
New blog posts weekly!
Tax planning, benefit optimization, budgeting, family planning, retirement planning and more...
Different Ways to Split Income With A Spouse
Splitting income is an interesting tax planning opportunity for couples. Because we’re taxed individually on our income it can be advantageous to split income and reduce the overall income tax bill for the household.
The goal of income splitting is to perfectly split the household income and the corresponding tax bill. Splitting income 50/50 is the ideal way to minimize the household’s income tax. However, the CRA doesn’t like this, and there are lots of rules in place to prevent income splitting in certain situations.
Income attribution is what happens when you split income that you shouldn’t have. Even if you didn’t earn that income it can still be attributed back to you and needs to be captured on your annual tax return.
For example, if the higher-income spouse gives the lower income spouse $10,000 to invest, any income earned on that investment is attributed back to the higher income spouse, even if it doesn’t get paid into their account and/or they don’t receive a T5/T3 tax slip.
Income attribution is a huge deal. It requires people to properly report their income. The onus is on the couple to split their income properly. If a household doesn’t properly split their income, and they fail to report income attribution, it can come back later in the form of an audit and/or fines & penalties.
The goal with income splitting is to avoid these attribution rules and legally split income to the extent it’s possible.
Income splitting isn’t for everyone but many people can benefit from at least some basic income splitting.
Canada Pension Plan (CPP) Is Expanding! And That’s Going To Make Retirement Easier
The Canada Pension Plan is expanding this year and that’s going to make retirement easier in the future. This expansion is part of a multi year effort to increase the size of CPP payouts in the future. The increased CPP benefits will make retirement easier for many people. It will mean less personal savings are needed for retirement and if you continue to save at the same rate as today you might actually be saving too much!
CPP is one of the best pension funds in the world. Actuaries have stated that CPP is solvent for 75+ years. That means anyone contributing to CPP now has very little to worry about when it comes to future CPP payments.
Despite Canada Pension Plan being one of the best pension in the world I still come across comments from people who are negative about CPP and OAS. They prefer not to count these retirement pensions in their financial plans. Instead they prefer to save more for retirement.
While I understand the desire to be prudent, this line of thinking makes things more difficult than they need to be. Retirement pensions like CPP and OAS provide an enormous amount of retirement income and ignoring them just means you have to save more.
Ignoring CPP and OAS is like running in a windstorm with a parachute tied to your back!
Why add that extra resistance when it’s already hard enough to save for retirement?!?
The good news for many people is that CPP enhancement will now fund even more of their retirement. Future CPP payments will make up an even higher % of retirement income. Before CPP reform the original goal for CPP was to cover 25% of earnings (up to the max) but with CPP enhancement the goal is to increase this to cover 33% of earnings (with a higher max too!). The result is that CPP payments will be up to 50% higher in the future!
This expansion will happen in two phases and the impact on your financial future will depend on how much you’re earning today and how long you’ll contribute under the new rules.
Unfortunately, if you’re retiring this year you won’t see much of an increase. But if you’re retiring in the next 5, 10, 20+ years you’ll likely see your CPP payments increase anywhere from $1.44/month up to $500+/month depending on timing and contributions! That’s an extra $6,000+ per year at age 65 or $8,500+ per year if delayed to age 70! And double that for couples!
The new Canada Pension Plan expansion won’t impact everyone equally, some people will gain more than others. Let’s look at the two phases of the expansion and how it will impact us.
What Does It Take To Become A Millionaire? About 11.1 Percent
What does it take to become a millionaire? Surprisingly, not much, as long as you follow certain principles…
There’s something alluring about being a millionaire. Becoming a millionaire is not a traditional financial planning goal. There’s absolutely no reason to aim for a round $1,000,000. In fact, $1,000,000 might be too much! But there’s something appealing about it, alluring even. It could be the simplicity. It could be the many references to millionaires in movies, tv, music and social media. I have to admit, there’s just something interesting about having a 7-figure net worth.
Becoming a millionaire isn’t too difficult, if you start early enough and follow some basic principles. It’s a formula that’s been proven to work time and again.
So, what does it take to become a millionaire household in Canada? About 11.1%.
By using the right accounts, you can invest your way to $1,000,000 pretty easily, all it takes is time and discipline. The average household income in Canada is around $94,833 per year based on research by Statistics Canada and adjusted for inflation. That means to become a millionaire household by the time you hit retirement at age 65 you need to save about 11.1% per year. That’s it.
If you can save 11.1% of your gross household income from age 25 to age 65 you have a good chance of becoming a millionaire. And this is a million in today’s dollars. With inflation, you’ll actually have over $1.6M in future dollars.
This might be a bit lower during the beginning of your career when your income is lower, and it might be a bit higher later on when your income is higher. But by saving 11.1% of your income per year you should have a reasonably good chance of becoming a millionaire!
The key is to start early, be consistent, avoid unnecessary fees, and avoid the many mistakes investors tend to make.
Join over 250,000 people reading PlanEasy.ca each year. New blog posts weekly!
Tax planning, benefit optimization, budgeting, family planning, retirement planning and more...
Join over 250,000 people reading PlanEasy.ca each year. New blog posts weekly!
Tax planning, benefit optimization, budgeting, family planning, retirement planning and more...