Tax planning for a family

Tax planning for a family in Quebec, involves maximizing tax savings and taking advantage of available credits, deductions, and strategies to reduce overall tax liability. Here’s a guide on how to approach family tax planning in Quebec:

1. Optimize Income Splitting

Spousal RRSPs: Contribute to a spousal RRSP if one spouse has a higher income. The higher-income spouse gets the deduction while the lower-income spouse eventually withdraws the money in a lower tax bracket during retirement.
Family Loans: Consider an income-splitting strategy using prescribed-rate loans to family members in lower tax brackets.
Dividends and Salary for Family Members: If you own a business, pay reasonable salaries or dividends to family members (spouses or children) for work performed to shift income to lower tax brackets.

2. Use Tax-Free Savings Accounts (TFSA)

Each adult family member should maximize contributions to their TFSAs. Investment growth and withdrawals are tax-free, providing flexibility and long-term savings opportunities.

3. Contribute to a Registered Education Savings Plan (RESP)

Contribute to an RESP for your children’s education. The federal government provides a Canada Education Savings Grant (CESG), and Quebec offers an additional Quebec Education Savings Incentive (QESI). Investment growth in an RESP is tax-deferred, and when withdrawn for educational purposes, it is typically taxed at the student’s lower tax rate.

4. Claim Family-Related Tax Credits

Quebec Family Allowance: Depending on income, families may qualify for a monthly allowance from the Quebec government to help cover the cost of raising children.
Child Care Expenses: Quebec has a generous refundable tax credit for child care expenses. Claim daycare or eligible caregiver expenses to reduce your taxable income.
Canada Child Benefit (CCB): This federal benefit is tax-free and provides families with children under 18 financial support based on their income.
Medical Expenses: Pool family medical expenses together and claim them under the family member with the lowest income for better tax savings.

5. Maximize RRSP Contributions

Each spouse should contribute to their RRSPs to reduce taxable income, especially in higher-income years. Contributing consistently helps build retirement savings while lowering current tax liabilities.

6. Claim the Home Buyers’ Plan (HBP)

First-time homebuyers can withdraw up to $35,000 from their RRSPs (per person) without paying tax to buy a home. Repayment occurs over 15 years, interest-free.

7. Take Advantage of Tax Credits

Quebec Solidarity Tax Credit: Based on income and family situation, it helps lower the burden of certain sales and property taxes.
Tax Credit for Home-Support Services for Seniors: If caring for senior family members or if a senior lives with you, this credit reduces costs for home care services.
First-Time Home Buyers’ Tax Credit: A one-time federal tax credit of $5,000 ($750 in tax savings) for first-time buyers.
Tuition and Education Tax Credits: If your children are in post-secondary education, unused credits can often be transferred to parents.

8. Consider the Registered Disability Savings Plan (RDSP)

If you have a family member with a disability, consider contributing to an RDSP. It’s a long-term savings plan with government grants and bonds, where the investment grows tax-deferred.

9. Investing in Tax-Efficient Vehicles

Non-Registered Investments: Consider holding tax-efficient investments, such as Canadian dividend-paying stocks, in non-registered accounts. Dividends from Canadian corporations receive a dividend tax credit that reduces tax on investment income.
Capital Gains Deferral: Capital gains are only 50% taxable, so focusing on investments that generate capital gains instead of interest can lower taxes.

10. Estate and Succession Planning

Will and Power of Attorney: Ensure you have an updated will and power of attorney to plan for the transfer of assets and minimize probate fees.
Life Insurance: Consider life insurance policies to cover estate taxes or provide a tax-free inheritance to beneficiaries.

11. Charitable Donations

Donating to registered charities offers tax credits. In Quebec, the donation tax credit rate increases for donations over $200, and large donations may provide significant tax savings.

12. Use Tax Software or Consult a Professional

Given the complexity of tax credits and deductions, using tax software or consulting a tax professional is advisable to ensure you’re claiming everything you’re entitled to. Quebec tax laws and credits can be intricate, and professional advice may help optimize your strategy.

By carefully planning and taking advantage of these strategies, a family in Quebec can significantly reduce its tax burden while securing its financial future.

For more information and help, please call (438) 725-5736 or schedule a free tax consultation at calendly.com/cpa-sjt.

Souleymane Junior Traore CPA

Founder of SJT CPA, your www.cpainmontreal.com