We all feel we pay too much in taxes. However, we don't always take advantage of ways to save tax.

The problem is that most of us feel that saving tax must be complicated.

One of easiest ways to save tax is by "income-splitting", which means moving income from one family member, who is going to pay tax at a higher rate to another who will pay tax at a lower rate. This is a simple tactic, but it works. Income splitting is certainly a cornerstone of tax planning. The savings can be substantial.

One strategy is a loan/transfer for fair market value. An individual makes a loan to a spouse or common-law partner or child, which the spouse or common-law partner or child uses to invest. Interest is charged on the loan at a rate at least equal to the Canada Revenue Agency's (formerly Revenue Canada) prescribed interest rate at that time. The interest, however, must be paid each year or within 30 days after the end of the year. If a deadline for the interest to be paid is ever missed, that year's income and all future years' income will be attributed back to the lending individual.

If an individual transfers property at fair market value to a spouse or common-law partner or related minor child (and reports any resulting gain thereon) and receives back from the spouse or common-law partner or child, cash or property of equal fair market value as consideration, the attribution rules will not apply. It must be the spouse's or common-law partner's or child's own cash or property that is given as consideration and, if a loan is part of this consideration, it must have an interest charge on it as outlined above. If the property is given to a spouse or common-law partner, the spouse or common-law partner would have to elect out of the automatic rollover, which generally deems the transfer to occur at cost.

While on the surface loans for value or transfers at fair market value do not appear to achieve any income splitting, it may sometimes make sense to transfer property at fair market value or loan funds and charge interest on the loan if an excess yield or capital gain can be earned. This avoids the attribution and, at the same time, puts a high-yield asset in the hands of a lower-taxed individual. The difference between the yield and the interest charged, or the future capital gain over the fair market value transfer price, will be taxed at a lower rate. The drawback is that any interest charged on the loan is treated as income to the lender.

We want to help you save tax! If you have not taken a serious look at reducing your taxes lately, or you want more details on this strategy mentioned above, please give us a call at (306) 757-2121, or e-mail us and we'd be happy to help.