When you are approaching a pension, a reduction in the tax account becomes the highest priority. If you have GIC (guaranteed investment certificates) as part of the investment strategy, there is good news for you. GIC income from Canadian insurance companies can be divided between you and your spouse after 65 years of age. This simple but effective tax saving strategy can help maintain a greater amount of hard -earned retirement income.
Let’s break the way in which GIC income works and how it can bring retirement benefits.
What is the division of GIC income?
The separation of GIC income is a process of dividing interest income obtained from GIC between you and the spouse. This strategy helps to balance your income, potentially reducing the total amount of tax paid. The best part? If your Gic is with the Canadian insurance company, he qualifies as retirement income. This means that it can be divided between both partners when you are 65 or older. Not with GICS Bank.
The separation of income is not available to all GICS. If your Gic is stored by the bank, you will not be able to share your income. But if your Gic is in a Canadian insurance company, such as Manulife or Sun Life, you can benefit from this benefit and reduce the overall tax burden.
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Why does gic income matter matter?
When you or your spouse earns a higher income, it pushes you to a higher tax range, increasing the amount of tax paid. In the case of pensioners, this can quickly consume your retirement savings.
By distributing GIC income, you share interest profits between two people. This spreads the tax burden, especially if one of you is in the lower tax range. Final result? There is more money in your pocket Instead of going to the Canadian Revenue (CRA) agency.
This is why it is important for Canadian pensioners:
- Tax savings on interest income
The division of income between spouses may reduce the overall taxable income, which means that you pay less tax on interest on GICS. - Keep more pensions
This strategy is particularly useful for couples with significant retirement or retirement savings, because it reduces the chances of switching to a higher tax range. - Improve cash flows for retirement
By reducing taxes, you will exempt more pension income for expenses for maintenance, travel or future investments.
GICS from Banks vs. GICS from insurance companies
Not all GICs are treated the same way when it comes to the division of income. It is important to understand the difference between GIC offered by banks and those offered by insurance companies in Canada.
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- GICS Bank
GICS from the bank is not considered a retirement income. This means that although they can be a solid investment option, you will not be able to share income with your spouse, even if you are over 65 years old. This may mean paying a larger income tax.
- GICS Bank
- GICS insurance company
GICS from a Canadian insurance company, such as Manulife, Sun Life or Desjardins, qualify for the division of income. CRA recognizes income from these GICS as retirement income, which means that it is good between the spouses after reaching 65 years.
This small difference can have a big impact on your income taxes. By transferring GIC to an insurance company, you will open the possibility of saving taxes by distributing income.
How much can you save by sharing GIC income?
Let’s look, for example, to see how much you can save thanks to the division of GIC income.
Imagine that you and your spouse are retired, and one of you has USD 10,000 interest income from GIC with the Canadian insurance company. Instead of one person, he pays tax on a full USD, you can divide this income into half, and each spouse has ran by $ 5,000 taxable income.
If your spouse is in a lower tax range, it means:
- Lower general tax rates
Since the spouse is taxed at a lower rate, you will pay less tax on 5000 USD compared to paying full tax on USD 10,000. - Significant tax savings
Depending on the tax range, this can save this thousands dollars each year. The higher the interest income than your GIC, the more you can save.
For people with high income, especially those with large retirement or retirement savings, this can lead to large retirement savings.
Where to find great gics in Canada
Not all GICs qualify for the division of income, but many of the main Canadian insurance companies offer qualifying GICS. Here are some of the best suppliers:
- Manulife
Known for a wide range of insurance products, Manulife offers GIC, which qualify as retirement income, which makes them magnificent after 65 years of age. - Sunny life
Sun Life also provides great GIC, allowing couples to reduce the tax burden during a pension. - Desjardins
DESJARDINS offers GIC via an insurance arm, which means that interest income is considered retired income and can be divided.
It is worth talking to a financial advisor to help you find the right GIC products for your retirement needs.
Simple steps to divide Gic income
Here’s how to start with the division of GIC income:
- Review your current GIC farms
Check if your Gic are stored in a bank or an insurance company. Only GIC from insurance companies qualify for the division of income. - Move your GIC to the insurance company
If your GIC is in the bank, consider moving them to an insurance company that offers great GIC. Talk to the financial advisor to find the best options. - Make sure you and your spouse are 65 or older
The separation of income is only available after the age of 65. Make sure that both you and your spouse meet this requirement before trying to divide GIC income. - Apply for the division of income in the tax return
When the tax season goes on, remember to apply for the division of income from the tax declaration. Your financial institution can provide details that you must include in your return.
Frequently asked questions about the division of GIC income
Can I divide the GIC income before I am 65 years old?
NO. The separation of GIC income is only available if you and your spouse are 65 or older.
Can all GICS be divided?
NO. Only GIC from Canadian insurance companies qualify for the division of income. GICS takes place in banks no.
How much tax can I save by sharing GIC income?
The amount you save depends on the level of income and tax ranges. The division of income with a spouse with lower earning can lead to significant tax savings, sometimes of thousands of dollars a year.
Do I have to pay fees to transfer my GIC to the insurance company?
It depends on the conditions of your GICS. Some may have fees for early withdrawal or transfer. Contact the financial advisor before making any changes. Don’t pay you with insurance gics. We are often authorized to return bank fees.
Can I divide other types of investment income?
Only some types of income, such as retirement income from GIC offered by insurance companies, qualify for the division of income. Talk to a tax advisor to find out about other eligible sources of income.
Ready to start with a financial advisor?
The division of GIC income with the spouse is an intelligent way to reduce taxes in retirement. If you are holding GICS from a bank, consider moving them to a Canadian insurance company to use this tax saving strategy. In this way, you can keep more your hard -earned money and enjoy a more convenient pension. We are here in the retirement of canada.com to help you in this process! Call us or book a consultation with enlargement today.