Evelyn Jacks: Family Lifecycle Planning Leads to Tax Savings

Birth, marriage, death, separation or divorce, university entrance, sale of business, unemployment, illness, career change, self-employment, inheritances, even certain birthdays — all of these life events can have tax consequences.

Yet many taxpayers miss significant tax saving opportunities because they don’t keep their advisors informed about personal change.

Whenever possible, taxpayers and their advisors should get together before personal milestones occur to discuss their tax consequences. Become familiar with the events that can influence your taxes. Embrace a process of tax-effective, life-goal planning before retirement, disability or death. You could save hundreds, if not thousands, of dollars if you think tax first, as you and your family approach significant milestones in your lives. For this reason, it is important to work with a professional who is there for you all year long.

One way to ensure you ask all the right tax questions of your tax advisor and to then take the right perspective in planning your financial affairs is to “think tax” at every birthday in the family. There are eight age milestones to watch for:

• Birth to age 6
• Ages 7 to 16
• Ages 17 and 18
• Ages 19 to 29
• Ages 30 to 59
• Ages 60 to 64
• Ages 65 to 71
• Ages 71 and beyond

Do you know the investment activities each lifecycle attracts? If not, be sure to see a Tax Services Specialist. Here are some discussion points, as a starting point, for the little ones in the family:

Birth to Age 6: Universal Child Care Benefits will be received regardless of income and Canada Child Tax Benefits may be available to the family, depending on income levels. In addition, working parents will want to know more about claiming child care expenses as a deduction using Form T778. 

Savings for minor children involve some important tax rules. Be sure to open a bank account for your child and deposit the Universal Child Care Benefit, the Canada Child Tax Benefit, and any gifts from non-resident grandparents — each of these are free from the “Attribution Rules”, which require that income earned on funds transferred or gifted by adults must be reported by the adult. Another exception to this rule is a gift of money invested in capital-gains producing assets. Resulting gains are taxed in the hands of the minor child.

New parents may also wish to open RESP savings accounts to earn CESGs (Canada Education Savings Grants) and possibly CLBs (Canada Learning Bonds). If the child is disabled, a disability tax credit may be claimable, and it’s possible the RDSP – a Registered Disability Savings Plan – is a great option for those families, too. 

These are new and confusing financial opportunities for most families. They require some study and/or consultation with an informed tax and financial advisor who can help families make great decisions about their family’s financial future.  

Knowledge Bureau has also published three excellent financial books for families that can help: Financial Fotographs, The Smart, Savvy Young Consumer and The One Financial Habit that Could Change Your Life.

It’s Your Money. Your Life. Be sure to think about “lifecycles” in maximizing available family tax preferences, especially at year end. Then take the time to teach your children about tax and financial literacy. . .so include them in the account opening activities and the early principles of wealth management.

Evelyn Jacks is president of Knowledge Bureau and author of 51 books on tax and personal wealth management. Meet Evelyn on the Year-End and Business Succession Planning Bootcamp tour this November. Follow Evelyn on Twitter at @EvelynJacks.