Senior Living: Deduct, defer, divide

Finding legitimate ways to keep more money in your pocket.

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The more money you make the more tax you pay, thanks to the marginal tax rate system in Canada. Making future financial decisions based on your gross income is something we all seem to do. However, from a planning perspective, it is not good enough to know how much money you make, but rather to know how much money you keep. Making a dollar today doesn’t mean you can count on spending that dollar tomorrow.


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We all have two layers of taxation in Canada: federal and provincial. The one thing that is guaranteed with taxation, is that it is progressive. So, over time it continues to go up, something that a lot of economists believe will continue for many decades to come due to COVID relief efforts. Knowing your marginal tax rate is one part of understanding your net income, however, there are specific strategies that you can utilize to help minimize the taxes you pay. The three best ways are to Deduct, Defer and Divide. Let’s talk about each method.

1. Deduct: This would be a deduction or claim to reduce your taxable income. This is a great way to reduce your income taxes and to ultimately keep more after-tax income. The best way to do this is to have a home-based business, be an independent contractor, or be a self-employed entrepreneur to write off expenses against your gross taxable income. For the rest of us, here are some common deductions, (this list will vary in each province and/or territory).


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* Pension plan contributions

* RRSP contributions

* Safety deposit box fees

* Interest expenses

* Union/professional dues

* Alimony/maintenance payments

* Employment expenses

* Moving expenses

* Professional fees

* Child care expenses

2. Defer: Deferring tax means you move the obligation to pay current taxes into your future years. The advantages to deferring taxation works on the premise that it is better to pay the taxation in the future; perhaps when your income is much lower, than to pay it today, when your income is in a higher marginal tax bracket. This can be done through registered pension plans (RPP + PRPP), registered retirement savings plans (RRSP + RRIF), registered education savings plans (RESP), and registered disability savings plans (RDSP).


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3. Divide: Income splitting is the best way to divide your income and lower taxation. Now I know that many of you who are single will say that this is not relevant — and you are right. Dividing income can only be done with your partner (so you will need to have one to do this last taxation step). Here are some of the ways you can split income.

* Spousal RRSPs

* Sharing CPP benefits

* Paying wages to family members through a business

* Using trusts

* Using partnerships or corporations to earn business income

Tax planning is easier than you think. It is not just about filing your taxes every year, it is about finding ways to keep more of your money in your pocket. COVID has forced us all to reconsider our careers, life plans, and future wants. Many people have written to me saying they no longer desire the same things they did before COVID. Many are using this world economic change to create a more minimalistic lifestyle — one that is more freeing, rather than living just to work and pay taxes.

— Christine Ibbotson has written four finance books, including the bestseller How to Retire Debt Free & Wealthy. [email protected]



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