Income Splitting allows the spouse with the higher income to transfer income to their partner, typically in a lower tax bracket. This reduces the family's total tax burden by putting more taxable revenue in the lower earners' hands.
For example:
- If Max had taxable income of $80,000, his basic federal tax payable in 2020 would be $13,731 [($48,5350*(15%)+($80,000 - $48,535)*(20.5%)].
- Alternatively, if Max was married and the $80,000 could be split on the basis of $40,000 to him and $40,000 to his wife, the federal taxes payable would total $12,000 [(2)*($40,000)*15%], a saving of $1,731 ($13,731 - $12,000).
(The various tax credits that may be available are not included in the above-simplified calculations)
You can visit our blog Income Splitting Benefits and Income Splitting for Seniors for further information.
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