Income Deferral

The basic principle behind Income Deferral is that if you are not going to use the income for consumption currently, you don't have to pay tax on these income until the time you use them.

• RRSP (Registered Retirement Savings Plan) is the best example for income deferral. The taxpayer contributes part of the income to RRSP. The contribution is deducted from income for tax purposes in the year, and income within RRSP can accumulate tax-free until the withdraw. Visit the RRSP section for more details.

• RPP (Registered Pension Plans): This is the plan established by an employer to defer income payable to employees, as well as providing the retirement income for employees.

• Captial Gains Deferral: Investors can defer the income tax on capital gains, as long as they hold the equity in their portfolio. No tax is payable on capital gains until they are realized (sold). On the flip side, investors are exposed to market risk on the potential decline ot the equities.

Income Splitting

The basic principle behind Income Splitting is that if different members of the family have different marginal tax rates, it would be wised to allocate the income from the higher taxpayer to lower taxpayer. Spousal RRSP is one of the tools can be used to realize income splitting.

Income Spreading

The basic principle behind Income Spreading is that if the taxpayer has highly variable income, he/shemay want to spread the income over several years to reduce the marginal tax rate. For example, professional athletes and entertainers may have the benefits of income spreading by structuring their contracts evenly.

Story Title

Tax deferral
Tax splitting
Tax spreading : income delay, capital gain spreading
Tax shelter: capital gain
Tax credit

1. income splitting
2. income shifting
3. attribution rules
4. tax deferral
5. tax shelter

 

for employee
for business owner
for investors
for home owner
for you and your spousal
for children
for senior

 

for business owner
As a sole proprietor, you declare your profit in your personal tax return. If you realize a loss in a business other than ‘hobby’ farming, this loss may offset income from other sources, including employment and investment income.

The economic reality of the activity should control its tax treatment.However, it is absolutely critical that you have detailed documentation of your activity. Reasonable expectation of profit and approach the business in a professional manner.