by Matthew Pollock

by Jason Rosen

by Elias Zafiridis

TaxApril 23, 20250 comments

Family Tax Planning Strategies to Maximize Tax Savings

Family tax planning involves organizing your financial affairs to minimize the overall tax liability of your household. It takes into account the income, deductions, credits, and expenses of all family members to ensure that you maximize tax savings.

The goal is to:

• Reduce taxable income through deductions and credits.

• Shift income to family members in lower tax brackets.

• Maximize benefits from government programs.

• Plan for the future by making tax-efficient financial decisions.

By planning strategically, families can retain more of their hard-earned money while staying compliant with CRA regulations.

Family Tax Planning Strategies

Income Splitting Strategies

One of the most effective ways to reduce family taxes is through income splitting. Due to recent amendments under the TOSI rules, income splitting is generally restricted to spouses or specific excluded situations. Income-splitting with adult children or other relatives may trigger punitive tax unless it qualifies for an exemption (e.g., excluded business or excluded shares)

Spousal RRSP Contributions

Contributing to a Spousal Registered Retirement Savings Plan (RRSP) allows the higher-income spouse to receive an immediate tax deduction. The lower-income spouse will then withdraw the funds in retirement when their income—and therefore tax rate—is lower.

Pension Income Splitting

Retirees receiving eligible pension income can split up to 50% of their pension income with their spouse or common-law partner. This reduces the tax burden if one spouse is in a higher tax bracket.

Family Trusts

Setting up a family trust can also facilitate income splitting by allocating investment income to beneficiaries who are in lower tax brackets. This strategy is especially useful for families with minor children or dependents. However, attribution rules and the TOSI regime may apply to income allocated to minor children or adult beneficiaries in non-excluded circumstances. Professional advice is essential to avoid unintended tax consequences.

Claiming Family Tax Credits

Canada Child Benefit (CCB)

The CCB provides tax-free monthly payments to eligible families to help with the cost of raising children under 18. The benefit amount depends on:

• Number of children

• Family income

• Disability status of the child

Child Care Expense Deduction

Parents can claim child care expenses incurred while earning income or attending school. Eligible expenses include:

• Daycare fees

• Nanny wages

• Preschool programs

• Day camps and sports programs

The lower-income spouse must typically claim this deduction, and it is limited to a maximum of $8,000 per child under 7 and $5,000 for children aged 7 to 16.

Disability Tax Credit (DTC)

If a family member has a severe and prolonged physical or mental impairment, you may be eligible for the Disability Tax Credit. This non-refundable credit can be transferred to a supporting family member if the disabled person does not need the full amount.

Utilizing Tax-Efficient Savings Plans

Registered Education Savings Plan (RESP)

An RESP helps parents save for their children’s post-secondary education while benefiting from government grants and tax-deferred growth. Key features include:

• Canada Education Savings Grant (CESG): Up to 20% on contributions (maximum $7,200 per child).

• Tax-Sheltered Growth: Investment growth within the plan is not taxed until withdrawn.

• Income Splitting: When funds are used for education, they are taxed in the hands of the student, often at a lower rate.

Tax-Free Savings Account (TFSA)

Families can use a TFSA to save for both short-term and long-term goals. Contributions are not tax-deductible, but investment growth and withdrawals are tax-free. Using a TFSA strategically can help families manage unexpected expenses without incurring additional taxes. Unlike other investment accounts, attribution rules do not apply to TFSA contributions funded by a spouse, making them an efficient tool for income and asset growth across the family.

Maximizing Deductions for Families

Medical Expenses

Many out-of-pocket medical expenses are eligible for tax credits, including:

• Prescription medications

• Dental and vision care

• Medical devices and supplies

• Professional therapy services

To maximize this credit, families can pool expenses and claim them on the return of the lower-income spouse to receive a higher benefit.

Home Accessibility Tax Credit (HATC)

If you make eligible renovations to make your home more accessible for a family member with a disability, you can claim up to $10,000 in qualifying expenses.

Tax Tips for Families with Adult Children

Tuition Tax Credit

If your child attends a post-secondary institution, they may be eligible for the Tuition Tax Credit. If the student does not need the full credit to reduce their own taxes, they can transfer up to $5,000 to a parent or grandparent.

Moving Expenses

If your adult child moves more than 40 kilometers for a new job or to attend school, they may be able to deduct eligible moving expenses from their income.

Charitable Donations

Making charitable donations not only supports your community but also provides valuable tax credits.

• You can claim a 15% federal credit on the first $200 donated and 29% on amounts over $200.

• Provincial credits vary, but combining donations as a family can maximize the total credit.

Common Mistakes to Avoid

1. Not Claiming Transferable Credits
   Failing to transfer unused credits from dependents or spouses can result in missed savings.

2. Misreporting Income Splits
   Improperly allocating income between spouses or children can trigger CRA audits. Ensure that all splits comply with tax regulations.

3. Overlooking Tax-Efficient Investments
   Failing to utilize registered accounts like RRSPs, RESPs, and TFSAs can lead to missed opportunities for tax-deferred growth.

Why Work with a Tax Lawyer for Family Tax Planning

Family tax planning involves a range of strategies that must align with CRA guidelines. A tax lawyer can help:

• Optimize your tax strategy to maximize savings.

• Advise on income-splitting arrangements to reduce your overall tax burden.

• Prepare tax returns to ensure accurate reporting.

• Defend your tax position if audited by the CRA.

At Rosen & Associates Tax Law, we help families develop personalized tax plans that reflect their unique financial situations.

***Disclaimer: This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions, you should consult a lawyer.