| Working part time in retirement. |
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| Written by Tim Cestnick |
| Wednesday, 18 February 2009 13:57 |
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As many adults enter retirement some ease into retirement by working as a consultant or starting their own part-time business based on a hobby or skill that they still want to utilize. This is an excellent ideal for people who just can't seem to stay still for too long. And also those that would like to supplement their income. So as not to deplete pension funds sooner than they would like. If you are earning an income from your home or office then here is one particular tax tip that you really want to take advantage of. Excerpt from 101 Tax Secrets for Canadians Tim's tip 45: pay salaries to family members for a number of tax benefits. There's no situation quite like self-employment to allow for effective income splitting between family members. I talked about the strategy briefly in Chapter 2, Tip 10 W. The idea is this: your business will be entitled to claim a deduction for any salaries are wages paid to family members, provided the compensation is reasonable for the services provided. Tai runs his own carpet cleaning business. Last summer, he hired his daughter, Kim, to work in the office booking appointments and doing various other tasks. Tai paid Kim $8,000 for her work last year. Kim can use the money to help pay for her college education, but she paid absolutely no tax on the $8,000 since it was her only source of income and it's below for basic personal credit of $9,600 [for 2008]. If the $8,000 had not been paid Kim, it would have been taxed in Tai's hands as business income, and would have cost tie $3,680 in taxes, and his marginal tax rate of 46% [$8,000 times 46%]. These taxes were saved by splitting income to the payment of a salary. In addition, the $8,000 is earned income to Kim, which provides her with registered retirement savings plan. [RRSP] contribution room. A great deal all around. Did you catch the benefits of paying a salary to family members? First, if the salary is paid to a family member who will face no tax, or less tax than the business would have attracted, there are permanent tax savings. Second, the salary provides RRSP contribution room to the family member on the receiving end. Third, the money stays in the family, as opposed to being paid to an unrelated third party. You'll also notice that this strategy works very well when a child needs money for school. Think about it. Tai was able to support his daughter's education in a manner that was tax deductible to his business and tax free to Kim. All that's required is that the salary or wages be reasonable for the services provided.
To Make a long story short:
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