Either by choice or necessity, an increasing number of Canadian families is getting by on just one salary.
For some, that may be the result of a difficult job market; others are single parents and some families choose to have one parent stay home to care for children.
Whatever the reason, surviving on one salary can be challenging. But by taking advantage of income tax and estate planning strategies, it's possible to keep more of those hard-earned dollars in your pocket, says Myron Knodel, director of tax and estate planning at Investors Group.
In a two-parent family, the sole income earner can look for opportunities to pay the non-working spouse a reasonable salary. That's possible if you're self employed and your spouse directly assists you in the business, such as keeping records and looking after correspondence.
It's a strategy that can also work if you're employed and are required to have an assistant.
"A good example is a commissioned salesperson who has a lot of paperwork and scheduling," Knodel says. "Their spouse can fulfil those duties from their home." Be sure to fill out the proper paperwork.
The downside is you now have to contribute to the Canada Pension Plan. "That could be an additional cost but the upside is your spouse now has a salary for that year, which will add to their pension benefits under the CPP when they eventually retire," he says.
Take maximum advantage of the Registered Education Savings Plan and receive a 20% Canada Education Savings Grant. Contributing the annual maximum of $2,500 per child will generate a $500 grant and if your family income is low, you may also be eligible for additional grants and a learning bond.
No matter your family situation, be sure to take advantage of deductions and credits for things such as child care expenses and fitness costs.
The Universal Child Care Benefit program issues a taxable $100 monthly payment to families for each child under the age of six.
"In a two-income family, it's automatically taxable in the hands of the lower-income spouse but in a single-income family you can have that benefit taxed in the hands of the child, which can provide tax savings," Knodel says.
Consider the creation or updating of a testamentary trust to ensure you have control over how your estate is passed on to your children. Likewise, there are benefits to having any inheritance you expect to receive left within a testamentary trust to you and your children because the income earned by the trust can be allocated and taxed in the hands of the kids, Knodel explains.
Contributing to a Registered Retirement Savings Plan requires a plan to pass on this major asset in the event of death and there can be substantial benefits to having a minor dependent child designated as beneficiary.