Tricks to paying less tax if you're married

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Anna-Marie Lyons for GoldenGirlFinance.ca,         On Monday November 7, 2011, 10:28 am EST                                

Our Canadian tax system has 4 steps; each time you jump to a new level, the taxes on each additional dollar earned increase. This tax rate on your last dollar earned is called your 'marginal tax rate' but your 'effective tax rate' is the average of them all. (For you trivia folks, the average tax rate paid by Canadians is 25%.) If you can reduce your taxable income to keep from moving up into that next bracket, then you can save on your overall tax bill.
How can you lower your taxable income?

• RRSP      Contributions
  

An RRSP contribution is your go-to accessory for your tax savings needs. Every dollar you put into an RRSP is a dollar deducted from your taxable income. Don't forget there is also the option of spousal contributions: If, for example, you contributed on your husband's behalf, then you get the tax deductions (money back on your tax return), he gets the investment and the long-term growth, and he pays the taxes when he takes it out. You have 60 days after the year-end to contribute to an RRSP, so you can do a preliminary calculation (or your accountant can) to figure out the best way to contribute the dollars you can spare. There are also RRSP loans available, though these are generally not recommended unless you're saving at the top marginal rate and you can pay the loan off fully with the money back on your tax return.

• Your      Investment Mix
  

If you have taxable income from investments, then you can lower your income by changing your asset mix from interest-bearing investments to those that pay dividends or produce capital gains. This often means taking on more risk in your portfolio, which may not be suitable for your financial situation.

• Employment      Expenses
  

If either (or both) of you and your spouse is self-employed, please consult with an advisor. There are just too many taxable-income-lowering options to mention in this scenario.

• Other      possibilities for lowering your taxable income
  

There are a few items that reduce taxable income that you don't have a lot of control over, such as pension contributions, professional or union dues, and qualified moving expenses.
Tax Credits
Even if you can't lower your taxable income, you should maximize tax credits that reduce the amount of tax you pay, and that at the end of the day, give you the same result — fewer taxes paid.
For example, are you taking advantage of the equivalent-to-spouse credit? Did you know that the public transit credit is transferable to a spouse? And that the highest-value tax credit of all is the political contribution credit, in case you are so inclined?
Final two words: Charitable Donations
Tax credits step-up for charitable donations, so it has become common practice for spouses to pool their donations and claim them on one person's return. You could alternate years to be fair. This isn't actually in the Income Tax Act, but to date, the practice hasn't been tested by CRA.
The good thing is that there's a long list of tax credits you may be able to take advantage of. Your tax advisor (or your tax preparation software, if you are a do-it-yourselfer) can walk you through them.
And consider this: It is amazing how few people plan for their taxes. If you knew the savings could pay for a family vacation or romantic getaway, the picture starts to change doesn't it?!
(For more detailed information based on your specific situation and provincial laws, please always consult with a financial planner or tax advisor near you.)

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