The tax planning strategy that you can take advantage of today.
Despite 2018 reductions in income-splitting tax strategies used in family trusts, TOSI tax and income splitting rules have made room for the prescribed rate loan strategy variation to thrive.
How it works:
Investment income held within the family can be split with low-income beneficiaries (i.e. low-income spouse or young children). The higher-income counterpart can loan funds to the family trust to then invest in publicly held securities. Continuously re-investing the gains from these securities (through the family trust) can produce ongoing growth. Additionally, since low-income earners have a significantly lower marginal tax rate than higher earners, beneficiaries of the trust don’t need to be paid out right away! This translates to big tax savings over time.
CRA sets the prescribed loan rate every quarter making it important to lock in this strategy before the rate increases above its current 4%.
Important Caveat:
A crucial note when applying the prescribed loan rate strategy is that the high-income earner must be paid the interest of the loan on January 30th every year. All benefits of this tax planning strategy will be lost if you miss the deadline!
Stay on top of all important deadlines and start capitalizing on this strategy today by connecting with our tax experts.
Learn more now: admin@realfile.ca
