A reliable way in Canada to do income splitting is by using the concept of the Spousal RRSP. The advantage of a Spousal RRSP is that you can put money away for your spouse. The important factor of this system is that if your spouse has a small retirement income, the spousal RRSP income will be taxed at their lower rate. Other than Pension Income Splitting, this is the only other way to split retirement income.
How does a Spousal RRSP Work ?
What do I mean? In my case, currently I work for a company with a very generous pension. Whether I make it to retirement here is another subject for another time. Let’s assume that I do get to retirement and draw my pension (which hopefully still exists). If I have also put away money in an RRSP for ME, all income for me and my lovely wife is taxed in in MY name (and thus all income is added together and most likely vaults me into a higher tax bracket). If, however, I have put all my RRSP money in a spousal RRSP, the RRSP moneys (which are most likely now in a RIF or some pay out scheme) are taxed in my wife’s hands at a much lower tax rate! Thus you have income splitting.
Now this is a quick overview of the spousal RRSP. I will put together a few concrete examples in the next few days to outline this. There are also other interesting features of the spousal RRSP to discuss, which I will bring up as well. Stay tuned.