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Income spreading



 

For people who have unpredictable incomes, income spreading is a tax reduction plan that will minimize your tax exposure on any large influx of income. The income is divided and spread over a period of time.

A good example of income spreading is to begin to deregister your RRSP prior to the obligatory age of 69. Spreading RRSP income can result in paying taxes while in a lower tax bracket, and could protect the amount of government pension you are eligible to receive.

Your business may have seasonal peaks of income that would force it into a higher tax bracket. Income averaging has not been allowed since 1986, although the benefit was restored in 1997 for farmers. Consciously receiving payment late is a way to spread the income evenly across the fiscal year. You have to decide if your company can afford to do this. If you have to take a bridge loan, will the interest exceed the tax saving? This is a very important question to consider.

To implement this tax saving strategy, consult one of the experts at ATS.

Instead of one huge lump of peanut butter, a sandwich tastes better with it spread evenly across the bread. Taxes are much the same; if possible volatile income should be spread in a level fashion across a fiscal period to avoid artificially elevated tax brackets.

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