202. Income Splitting Strategies for Couples in Canada

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How on earth do you go about splitting income with your spouse? Everyone wants to know. The rules keep changing. It seems to be a my rate of complication to see how you might be able to get some advantage on your taxes. Well, I'm joined together with my good friend Dan Allen going to talk a little bit about this idea of income splitting and he's going to walk through some personal examples. As someone who's been around the block for a while, he's gone through the experience on many different governments, many different tax environments and so he has this incredible breadth of knowledge that he's going to bring into a great conversation we're going to have about it today. And I'm excited, Dan, I'm excited about this topic. I think it's, it's timely for us to be doing it now at the time of this recording we're, we're, we're Approaching Christmas of 2023, so this actually might be released into the new year. And of course, you know, for anyone who doesn't know, there's some big tax changes coming in 2024. So we're not going to be spending a lot of time on that here today, but we're just going to talk about the general aspects of income splitting and some ways to maybe accomplish it in your life and some ways of thinking about it. And more importantly, we're going to talk about some stories on how it's even worked, you know, for, for an example for Dan and his wife in the past. So anyway, it's going to be a lot of fun and I'm excited, Dan. Let's, let's dig in.

Let's do that. Yeah. And it's, it is one of those things that, you know, as I think about it and I go, you know, today we're going to talk about a few tax qualified plans and you know, when I think about Nelson, what his thoughts were around those and we know if he was here he might kick us right out of this organization. But I'm going to talk about them because they're there and they're real and because I used them. So one of the things I found in life before I knew about infinite banking is I was using the, you know, the tools that were there available to me to help reduce my, you know, T4 income. So as a high, high T4 income earner and, and all through, you know, the, the time that my wife and I have been together, she's always been the lower income earner because a lot of the times she was, she was spending time with our children trying to, you know, create them into people that are going to make a difference in this world. So that's just been our experience. So I've got a few experiences. I thought I'd share some with everybody today.

There's no better way to learn other than through experience. That's my, that's why. And I agree, you know. Yeah, Nelson might want to kick us out, but I think he would, I think he would recognize the, the, the, the mindset of sharing a journey and, and stories along the path and ultimately that's how we learn best. And he was the master at that. And Dan, you know, you're, you're pretty sharp cookie. So I appreciate when I get to, to learn from you and your experience as well.

Yeah. So we'll, I'll try to get my screen, my sharing stuff going here and we'll have a look at what I got going on today. So how's that for a bright, shiny picture?

Well, it's a lot of, a lot of numbers on that page in Canada.

Yeah, There you go. So I thought I'd go through a few things and, and one of the things I just thought I'd start with is talking about a tree.

So nice, beautiful shot of a tree. We just had, you know, some beautiful days with nice horror. Frost and I took this picture. So this happens to be a tree in my backyard. And the interesting thing about this story, Richard, is I planted that tree.

Okay.

Yeah. So 2008 put that tree as just as a little sapling. And I think it's done pretty well last 15 years.

For our audio listeners, I'd say, I mean, we gotta be looking at what, 25ft roughly, probably to the top of that thing right now.

Yeah. Because the fence is six feet and it's as well. Yeah. So it's up that point and you know, the reason why I want to throw a tree into our discussion today is we use that tree analogy a lot about, you know, what's the best time to plant a tree? Well, it's 20 years ago. The second best time is today. And what I really wanted to think about was, you know, most things in life when you, if you want to do something, well, if you wanted to plant a tree and get fruit off it, well, you just can't, you know, you have to plan for that, you know, so you have to think about it. We put this tree in our backyard just for shade. Well, so if you're going to get an outcome, it's going to, you know, you have to think about how am I going to get that outcome. So I thought I'd throw the old tree out there and just, you know, everybody knows you can transplant a tree. But really what I'm trying to get to is if you want an outcome, you just have to be thinking about it. So one of the things when people hear about income splitting, they go, well, it's just for the older folks, it's like seniors, you got to worry about that. Well, it's not you should be thinking about it, you should be planning for it well before you get to the, the age of where most people think of income splitting. So there's something I threw in. If you want to achieve a certain outcome, you have to plan for it. And I always love putting this comment in there, Richard. It all begins with the way you think.

Well, I like how you planted a tree for shade and then you waited 15 years to get your shade. So that's, that's definitely thinking in advance, Dan.

Yeah, yeah, it's, it is one of those things. You, you going to wait for it if you want it. So I thought we just get into that what really is income splitting. And really it's pretty straightforward and it's just transfer of income from one high, you know, from a high income earner in your family to a lower income family member. So typically it's between, you know, spouses or partners in a family that this happens.

All about reducing the tax. You know, we, we talk a lot about taxes. Right. We got that great book that you and Henry and Jason put together about keeping taxes away from your wealth. Well, this is something I thought I would share with everybody is really the Income Tax Act. Who hasn't found that thing a little difficult to work with? And it's really got some interesting attributes about it. In most cases, you know, they're going to try and push that income that you earn, you know, towards you. So if you're a higher income earner, they want you to pay based on your income. So they really try to chase. Now where did that money come from so it can be attributed back to you when you do certain things. You just have to be aware of that. But there is rules and opportunities to do income splitting that, that are legal and fit within the tax guidelines in our country. So just want to talk about a, a few of them as we go.

Yeah. I think Nelson used to say when he talked about the IRS tax code is that the, the first like seven pages define what income is and the remain the remaining 900 pages tell you all the exceptions to the rule in the first seven pages.

Exactly. Yeah. And that you know, Tax act just gets bigger and bigger all the time. Like it is not. And that's the other thing, you know. You know, I'm going to encourage everybody if you get into doing income splitting, you know, make sure you talk to an accountant and just make sure you vet everything with them so that you're following those ever changing tax laws. Like I always, I put in the bottom of these slides. Just check with CRA for, you know, for the tax laws because you, I want you to do that now because I'm not a tax specialist. Yeah, I took this stuff off of CRA's website. That's where I got it.

But anyhow, surprisingly enough I don't think anyone really gets excited when they get a call from cra. But in my experience when I've actually called them, assuming I'm able to get through to a human being. I don't remember the last time that happened by the way, but I've always had a actually great experience speaking to someone who works there. They've, they've always been very good at answering questions and actually often I found very good either advice or tips or direction. Know a lot of the people that do work there, they're just like us. They, they, that's their job. They do a great job at it and they actually want to help other people. So that's been my experience personally. Although that being said, I don't really want to get any more calls. So I would be happy if they found a way to lose my number. But just throwing that out there.

Yeah, no, I totally agree. I've got some great clients that work for CRA and I know they're good people and they're, they're no different than me. That's their job and they do it. So here's some of the options I just want to go through. And I just want to tell you all there is other options. I'm just going to cover a few today. But the first one, pension Income split. And that's what a lot of people think about right away when they think about income splitting. Next one is like spousal or partner rrsp. You can actually do income splitting with that qualified plan being the rrsp.

And I don't know how many people know about this. You can actually give funds to a family member who's at a lower income and they can invest it in a tax free savings account if they have capacity in their tax free savings account option. And then we're going to talk about this one. This is a little different one, but it's just about a family and how you could, you know, just think about things differently. So let's start with the old pension income splitting. Everybody loves this one. Surely it's the transfer in spouse or common law partner. And the receiving spouse and common law can elect to split the transferring spouses or common law's eligible pension income received in a year if all the conditions are met. Does that surprise you, Richard? There's conditions.

It doesn't surprise me. I would imagine that, you know, you probably need to, it's kind of like you go to bake a cake and if you don't have all the ingredients, you're probably not gonna be successful. And if you don't have a recipe, it probably isn't going to work. And it's kind of like, well, if you want to save a little bit on tax, you, you kind of know where the need to know where the recipe is. So you know where all the conditions. When do you, when do you mix it, when do you put the sugar in and so on and so forth so that you can, you can end up with the results. In this case, it's a don't pay any tax cake. Well, pay your fair share tax cake I would call it.

Yeah, no, exactly. So you know, there's going to be conditions. So let's just, let's just talk about what these, those look like. So you have to be basically living together. So even if you're married but not living together, you want to check this one out pretty well. It's got pretty well worded. This is right off the CRA site, you know, so you really got to be in a relationship with your spouse or common law partner. And it's got some very specific things about, you know, how long you could even be separated. So just be aware of this one. You know, I think I've talked about this before. What I've learned in life, Richard, it's always simpler if you're, if you're Married or living with your partner, just stay that way. Things a lot simpler.

Yeah, just, just, just keep it going. It's interesting that it says you have to be living you know, with them at the end of the tax year and for a period of 90 days or more beginning in the tax year. So there's kind of like a gap I guess in the middle where you could take a hiatus I suppose, but you got to be there for the first 90 days, you basically got to be there for the last. So spend the winter together and then in the summers you could do what you want. I suppose. I don't know if that's what CRA is trying to incentivize, but true, they.

Really, I think they're just trying to make sure that you're actually a couple and it's, you know, so that's why they've got that one condition in there currently. The next one is, is like you got to be a resident of Canada on December 31st of the year. And even if you know, if you deceased you had to be a resident of Canada at the time of your death and in bankrupt in the year you still had to be a resident of Canada on, at the 31st of that year that the tax year pre slash post bankruptcy end. So there's just a few things to really be aware of and another one is that you know, you receive pension income in the year that qualifies for the pension income amount or you were 65 years of age or older and received a certain qualifying amount distributed from a retirement compensation arrangement. So you know, things I've learned Richard, is that if for example, I've got a RRSPs, I still got them because I had them while before I knew about this concept. And so I still got RSPs and I've been you know, melting them down slowly and, and moving them into my system of policies that I have. But I still, but I still have them now Even though I'm 65, I can't income split with an RSP with my spouse. If I take money out of my rrsp, it's all my income now if I took that RRSP and I change it into a RIF or well then you can do income splitting. So it has to be qualified. So you really have to you know, have their, the right.

Product I guess is the right way to call it.

So I think the format is really the, the focus being that it's, it's income.

Income taking versus I guess capital based depleting, you know, taking money out of the RSP I guess would be depleting the capital base versus receiving it in its theoretical intended form, which is as an income base. I guess that's probably the distinction I think they're going for.

I think you're, I think that's really good way to, to describe that for sure. So. Yeah. So just be aware of that. And one of the interesting things about.

One of the interesting things about pension income splitting is there's actually.

You know, if you have a spouse and that spouse is a lower income level, you both can claim this pension income amount which is, you know, it's like a $2,000 benefit for each of you. And so when you are able to split, you both get to claim that. And it's just, you know, and it works really well if only one of you has a pension. And that's the case for, for myself and my wife, I'm the one with the pension income. And so we get to utilize this process.

Okay, so you, so you each get an allotment for a benefit amount that can be utilized and this, this amount that you can claim, I guess for eligible pension. The, the advantage being that if, if the pension's in your name and you're the only one that has one because you can split it, there's an additional benefit you can both use. I mean, probability is over, over a course of a number of years, Dan, in receiving that pension. I mean, that's probably going to add up to a fair degree of tax savings for you and your wife combined, if you really think about it.

Yeah, no, it's, it's quite a quite nice little thing for the people that qualify and are at that stage of life and, and have this type of setup where, you know, one of you just got that pension income and the other one doesn't, at $2,000 can make, like you say, a lot of difference over time. So that's, that's what this is about. It's, it's really, you know, the way you can figure that out is it's going to, you just have to go and look for that on your actual return. And it, yeah, so there's, again, work with an accountant. That's what you need to do. But be aware of this, this is an option because sometimes you need to have good conversations with your accountant to make sure they understand everything that you're doing. So what are some of the eligible pension income? So it's any annuity type payments from a registered pension plan, so regardless of the age. So there is cases where you can be under 65 and still have a registered pension that qualifies. So again, what I'm going to, you know, basically direct you to do is, is refer to the cra. Now there's not a lot of people that have this option available to them. But again, if you are and do have a annuity type payment coming from a registered retirement pension plan, you can qualify for pension income splitting. And this is the one more people are familiar with. And that's where you have something like a retirement income fund or a life income fund and you're 65 years of age or older and you're drawing pension income out of those products.

So the other one I thought I'd jump into quickly is like spousal or partner RSPs. Now again we're talking about a tax qualified plan. So you know, if you, if there's a real variance in your family between who's, you know, different levels of income, only a higher income person can be buying spousal or partner RSPs. So you know, some people are, you know, really focused on, you know, utilizing that, that deferred tax benefit. And if you, you're one and you got, you know, something that you're passionate about and you have a situation where there's a, you know, marked difference between income levels between the two partners in that relationship, well, this is an option for you. And again, it just comes down to, you know, when you start taking out funds later in life, where's the income level going to be and which one would benefit. So this is an option that you can do is, is start a spousal or partner rrsp.

Now you've had some experience with this, I think, Dan, as well with you and your wife, Barb, is that something you can maybe shed some light on for the listeners?

Yeah, so I just. Exactly. Good point, Richard. So one of the things I wanted to point out is that if you haven't made a contribution into that spousal or partner RSP for three years, then that partner or spouse can take that income out and be taxed at their income level. So what that looks like is, you know, you know, I did this in my life. So with butcher maybes I paid into a spousal rsp and then we strategically I stopped putting into that spousal rsp. I knew about the three year rule and you know, I just, I was just looking at doing things and, and I was looking at, you know, putting as much as I could into that supposal RSP for a while and then stop and you know, just to contribute to mine. And then after three years, and one thing's another thing I've learned in life, Richard, is three years goes by pretty quickly.

Then at the time and it still is my spouse, she could take that income out and taken her RSP out and it's taxed at her income level. So effectively, if you think about that, her income is really low. And so she would be, you know, quite a difference on the amount of tax at the end of the year when you did your tax calculation. Even though with RSPs they withhold, you know, based on the percentage of how much you're taking out. Know if you're taking out more than 15,000, they're withholding 30% of it. And so that doesn't matter really at the end of the year. What really matters is when the tax calculations are all done because you can actually get refunded part of that if your income was low enough to support a lower income. So we use that, that was an option and people may not think about that because it does take planning. I go back to the, you know, that tree analogy, like if you want something, you have to, you know, think about it and start putting in pieces in place to be able to do it. And, and we did that purposefully, just supported spousal RSPs and then stopped paying for three years so my significant other, my dear wife, could take out income and be taxed at her level.

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I try to call and I might not be getting this correct, but I, for some reason I thought it was three years from the, the time that it entered. But you're probably correct. I would just again encourage everyone to double check that, that it's three years from when you stop contributing to that account entirely.

But yeah, you know, again, this is a situation where you know, as anyone listening knows that you know, my, at least myself personally, I'm not a big fan of the government sponsored programs. Sorry, it is what it is. But a tool is a tool is a tool and if a tool can fit a job and we know what, what it's going to do and we can be very intentional about the utilization of it, then everything's on the table. And so this to me is a very strategic way of thinking about, okay, we're in a high income T4 type scenario. We don't have a lot of other levers that we can pull to create additional deductions. We know that we're going to have to pay tax anyway at some point in the future if we can control to a high degree of certainty what that future outcome looks like. So we're not talking about the market risks or whatever here, but more so in the tax environment if, you know, fundamentally we have one person here that's earning very little money. And if I shove, hey, I put 30 grand a year into the spousal account for a couple of years. I have a hundred thousand dollars that builds up in the account. I stop funding, Three years goes by. We were going to have to get the money out eventually anyway, but now I can increase my timetable on when I take it out. We take out 30 grand a year and we do that for three or four, you know, for three, four years. Yeah, we have to pay the withholding tax like you indicated, Dan. You're, you're, you're, whatever the amount you take out, you pay the withholding tax value at that time, but then you settle up to tax bill at the end of the year. And if you're in a lower tax bracket, I mean for you, at the tax bracket you were at when you were doing this process, I suspect you were probably at a, probably a 35% tax bracket or something. You know, it was, it was, it was probably not a very friendly level. You worked in the oil, oil business. So I, I, I know the type of work that you were doing and I can picture what the salary was like. So I suspect that the differential between your, your tax rate and your wife's tax rate was a night and day difference for your situation because you were strategic probability is you did save a lot in tax that way, which was clear because you knew what the exit looked like. So what I really want people to take away from this conversation is yes, there's an income splitting strategy here, but it's also if we're going to work with a tool like the registered plan, you have to really think through and consider who's going to end up taking the money out. And if we, if the goal, if the quote unquote goal is to pay less in tax, if that's the true objective, you have to really consider who's going to, who's it, whose hands is it going to be taxed in And I think that's fundamentally what you're driving it.

Yeah, exactly. What 100%, Richard, that's what you want to focus on. And you know, so we'll talk more about, you know, what we did with some of those funds when my dear wife took them out under her name and referred to taxed at her level, we just put them somewhere where, you know, it continued to work for her and support our family the rest of our lives. But you know, just give us that flexibility because you know, we made a conscious decision as to who is going to take that income out. Yeah. And I put that income in through spousal rsp. Again, go back and make sure you're talking to your accountants, check the tax laws, anything we're saying today or not. Tax experts, you know, I'm just describing what I've done and I, you know, I did follow the tax rules when I, when I did it, so. But it's up to you. Everybody has a responsibility to inform themselves, know what you need to know whenever you do anything. Because you know the tax rules are there for a reason and so you want to understand them and you want to work with them and not outside of them.

Because we don't want to go there.

We don't, we don't want to go there, that's for sure.

Yeah. So that's, this is really something that, you know it from my understanding when I research it. Really you had to stop for three years. I, I didn't contribute for three years before my dear wife started taking any of those RSP funds out. And so that's what I used in, in my life. So I thought I'd, you know, this one here, I don't know how many people know about it, it's kind of a different one. But you can, you know, if you're the higher income earner in your family and you have family members such as your spouse or partner who are eligible to contribute to a tax free savings account but don't have the significant funds or cash flow to do. You may wish to gift them funds but the key thing is, is that you know, if you, you do that they need to put it into a tax free savings account. They can't just do it in a non registered kind of fund. So this is another one where I'm going to encourage everybody to know the tax laws. So you don't want to get yourself out, you know, out of bounds in any way in time, but this is just an opportunity that know that person can fund their tax free savings account. And it can grow their tax free. But again, this one you want to check with your accountant and know what you're doing.

So there will be no attrition or income on gains while the funds are invested in the plan. And your family member will enjoy tax free investment income while those funds are invested. So it's in the tax free savings account. I got to emphasize that.

Higher income earner pays all the expenses. So this is something not rocket science. This is a pretty, pretty basic idea. Sounds very simple but highly effective. And that's where you know if there's two of you and you're both earning income, let's just use hypothetical numbers. One's earning a hundred thousand, the other one's earning 30,000. Well, if you're in your family, if you can do this again, it's all based on what's reality for your family. If the person that has the hundred thousand of income can pay all the expenses and the lower income earner can and take what they have or take home and invest it in something like a non registered income producing vehicle of some sort, well then that income is going to be taxed in their, at their income level versus at the higher income level. So again it's just all about planning and thinking through things on how could you do this as a family and you know, set yourself up for success. So all those non registered tools that you have, vehicles that you have that are bringing in income for that lower income spouse is going to be taxed at their level and it's still family income. Now I still go back and we talked about this earlier, Richard. It's, it works really good if you stay together, not so good if you don't. So kind of a key element there, but that's just one a lot of people wouldn't have thought about is like can we do this? And again, if you're spending everything you're both making to live, you know, you don't have no money to invest. No, you can't really use that technique because you just don't have the capability at that point.

Yeah. And time often opens up doorways to create the capability that you're looking for. But you could speed that capability along by focus. Having clear defined goals that are well, well, well clarified and, and then putting in the work. I mean.

You could be amazed what you can get done if you just put in the work.

Yeah. Again it all goes back to, you know, all the way you think and the way you plan. And so this is one I, you know, a lot of people wouldn't have thought about, but it is something to think about if you're in that position where, you know, one of you is a higher income earner and the other one's a lower income earner and you actually, you know, again are going to do something where you want to invest in non registered kind of income functions or vehicles. Well, this is something for you to think about things. I wanted to really help, you know, have people think about, you know, as you think about doing this, what are some things you need to consider?

It's true that you can use these methods to reduce your total tax for a couple or a family, but what happens when you know, one of you graduates and you know, from life? So you have to think about all those things. How do we set this up so taxes won't be a huge burden? And where this comes from, Richard, is like I've known those cases where, you know, a couple or did very well and they set up a really good plan where they were doing income splitting later in life and they had a lot of non registered kind of income coming into their family and then one of them passed and then all of a sudden the tax bill goes way up because that same amount of income was coming in and then there's just one of them and so no longer able to do income splitting. So it's just things you need to think about. We'll, we'll expand on that a little more. And then again, we've already talked about this. It's always something. I don't like to bring it up, but it's really, anytime I always encourage people, you know, you should be able to talk about this with your partner or your spouse and make sure that, you know, this is something you haven't, you know, as a consideration. You always want to be thinking about those things. So the other thing I wanted to throw out there, well, is there another way to do it? Now? Here's a question I have for you, Richard. I put it up there. Could the higher income earning spouse or a partner paid premiums on a dividend paying whole life policy for the lower income earning spouse or partner think that's doable?

Absolutely, yeah. I mean it happens. I think, I think it happens all the time. Most of the time. I mean it's, it's, it's much more common to see a differential in spousal income, I think than it is to see things being similar or, or equal. I don't, I don't have very many people that I, I serve and help that have similar incomes. They're all over the map and quite commonly it's no different than my own situation. And, and, and yours, Dan, in your, in your younger days, your, your wife was taking care of the real work, making sure that your kids survived on a day by day basis. Things like feeding them. Apparently that's really important. That's what I find out from my wife anyway. At least I find out when, when she's, she's going away for a couple of days and I'm responsible for all the things that she does and I have to fumble my way through it. And supposedly I do an okay job because my kids are still here, but some days I really do wonder anyhow. So, you know, I'm in that same boat where, you know, my wife primarily is, is taking care of raising her children and doing an amazing job at that. So we have that same situation. And yeah, I'm the one that contributes to, to the premiums on, on her policy that we own. Policies that we own personally as well.

Yeah, yeah, so that's exactly right. That's very similar to my case. You know, my wife did the real work. I was just the one that got paid for the work I did. And you know, and. Yeah, exactly right. And so a lot of things in life and including you know, when we started to, you know, pay premiums on our policies, I was the high income earner and, and you know, just, you can use the third party payer, you just have to state who and you know, the relationship and that is an option for people to consider. And so what would be the advantages? Think of some of those advantages for a family, Richard. If you know, someone had a dividend paying whole life insurance policy that you know, the higher income was planned for, but the other person owned it. And what does an owner have for control?

The owner has access to the.

Policy, loans and you know, any changes that need to be made to the policy, etc. I mean obviously again, like in, in, in conjunction with good communication. I mean there's a lot of opportunities that come there. I mean a lot of people that we work with, they, they look at things kind of more from a family system perspective anyway. But yeah, I mean like it could, it could be whatever. Like you know, a spouse has got to spend money on all kinds of things. They need clothes, they got to go get their hair done, they need to do all number of things, you know, household living, whatever, and that could be an engine to be able to operate a lot of that kind of household activity and annual spending and do that from a vehicle that's we're taking the dollars and before those dollars are going to fund all the things they could be going into the system that allows the things that are going to be funded from that point forward. So there's always a growth mechanism that's taking place while also creating more protection for the family as a whole. So to me that's a very sensible way of looking at it, especially if we're being intentional. You know, it's like hey, we can estimate that spending for this partner over the course of the year for things that they're going to be tackling, whether it's groceries and the car repairs, like whatever, all those things, whatever they are, hey, that's 30 grand a year. Well we, we're going to be putting 30 grand a year somewhere. We might as well put it into the policy first and then we can build up a reserve so that we can create the environment that we want on a longevity basis. The other key thing too with policy Dan, I think it's important to understand is when the time comes and someone wants to exercise the option to utilize them for passive income type strategy, there are different ways to do that. Most commonly people will look at a collateral type arrangement where they're going to be able to access that capital on a tax free basis, whether it's using a third party lender or there's some other kind of ways of looking at it. And when you consider everything you shared about income splitting, especially around like the pensions, so are riffs pensions. Even CPP is on the list of things that can be income split. So often if you've got a situation where one partner was maybe staying at home with the kids for a number of years and the other one was earning a larger income, they'll have a larger CPP base to work from of income as well. So the ability to split, that goes a long way if you have these layers stacked together well now if you're also able to access some tax free capital from your policy system, you're not increasing income in those later years which could then create clawback situation on things like your old age security. So the, the income splitting capacity that you've discussed today goes directly to the, the ability to maintain and keep more of the OAS capacity that you might be able to see before clawback. So these are all like little levers and they might seem small, but when you put them together they can create a really big impact year by year. And if you think about that over a 15, 20 year horizon, you know, retirement horizon or what have you. We could be talking about a really substantial amount of savings just by implementing some of these basic things that you've told us about today.

Yeah, that's 100%. And the other thing I, you know, I, I thought of as you were speaking there, Richard, was, you know, so a lot of times and you know, people will focus on, you know, get later in life and if you're not collaterally assigned your policy and you're taking income out, which you could through policy loans and it's the, you know, the lower income earner for the life, you know, as your partnership grew over years and that person has a much lower income even in, at that point in time and they start taking out policy loans that go above the adjusted cost basis, they're going to be taxed at a different rate than someone has this pension that they're pulling from and getting all this income out of. So there's, there's, there's a lot of things to think about. The other thing you mentioned there was cpp. So you can't actually, can't actually split cpp, but you can share cpp. So slightly different. I just want people to be aware that when it comes to the Canadian pension plan, if you have it and you got a lower income spouse, you can share that income with your other spouses, little different terminology and just go again, talk to your accountant about what those things all mean.

So.

We talked about this. There's lots of options for the owner of the policy and way they choose to use it. And again, this is one thing that me and my wife are working on. So we both have policies and you know, so I'm thinking about, well who, whose policy are we going to take the value out of if we're not going to put it back? So later in life, who's policy are we going to start taking, you know, some of that cash value out or you know, supporting our, our lifestyle later in life? Well, it's going to be mine because statistically my wife's going to outlive me. You know, her mother lived to be a hundred. So I, I think we got a good chance that she's going to outlive me. And so then if I graduate my policy and she's got, and we've been using the, you know, amount available, cash values available in her policy, well she can just replenish that with my tax free death benefit and just, it just works good for the family. So there's lots of things to think about and you know, that's what I was going to share with everybody today is, you know, there it all comes down to just, you know, taking time, educating yourself, thinking about what you could do, and then planning for it. Because if you don't plan, you get to a point, we've, we've both seen that, where someone's got to a point in life and they haven't thought about planning for, you know, things down the road. Well, just puts them at a disadvantage, and you don't want to have that disadvantage. So those are just some of the ideas, Richard, I wanted to run through with everybody about, you know, income splitting. And again, I just want to emphasize, make sure you talk to your accountant before you do anything when it comes to.

Income splitting to make sure that you're following CRA guidelines.

Now, I would add to that and, you know, don't, don't wait to have that conversation right when the end of the tax year is December 31st. And I don't know about you, Dan, but I find generally on December 31st, I've got other plans.

Typically that whole last two weeks, there's, there seems to be some things that keep showing up in my calendar, like Christmas concerts and whatever that I have to deal with. And I don't know about your wife, but she probably plant, you know, maybe she makes like a cheese ball and a platter every once in a while. And you have some people gather around and you snack and, you know, you have some turkey. So, like, there's a lot of activity and it's not really the right time to be putting your focus and your energy on having a conversation with your accountant. It's also not the right time to have that conversation in April when your taxes are being filed for the previous year and you're asking them about the previous year. Now, it might not be a bad idea somewhere between January and April to start talking to them about the current year. So start having those conversations. Put, put it in your calendar, make it part of your 2024 goals and your planning to actually sit down and think about your tax planning. Consider what do I anticipate my income is going to be this year? What. Where do I actually think it's going to land? What are some things that we could do now in preparation for that? Not a lot of people ask those questions. And just this, the beginning of that process is going to start opening new doorways for you about what you might do. The other thing, Dan, I really appreciate you said is again, you, you considering the idea that, okay, maybe Dan's going to be the first one out the door. And therefore there's going to be a payout event and Barb's going to be able to have some capital and to work with, etc, you know, so there's many ways of considering how, how to look at that. You, you know, another way again. So for me, I have policies on my kids and Dan, I know you've got some policy on your kids and grandkids as well. I plan on using my kids policies. They don't know that yet. I mean their, my son's gonna be eight next week. Like he doesn't know, he doesn't even know what a policy is. He understands we have a family banking system. He doesn't know a lot about it, but we're gonna be spending some time on that next year. And you know, as he grows up he's gonna learn more and more about these things. He's gonna learn about taking loans, he's gonna, about paying them back, he's gonna learn all those components. But I'm gonna use the policy, I'm the one putting all the money in, I'm gonna get my money back up and I expect that they will have learned that they need, how they need to deal with that. So when dad's gone, there'll be a payout of money. My wife will have instructions through the will and through, through other means that will say, hey, you should pay off these policy loans first. Then you're going to do, here's a list of things that I have in mind for you to do and you'll be able to access the money again for as long as you're still here. Assuming that I go first, which is probably the scenario, I do tend to do some dumb things.

So.

It'S, I mean, hey, life is life, Dan. I mean, you know, if you got the scars to prove it, you know, that you've done some dumb things in the past. Probability that I'm gonna be mindful of all those things in the future is not all that high and I might do something dumb in the future as well. So I suspect I'm gonna go first. And yeah, absolutely, there's going to be a payout event and we want to make sure that there's, there's continuity in the thinking process of how we can make that continue to go around. The other thing that's nice about the way that we're planning here with insurance is that there will be a secondary event and that secondary event will be for my wife. Well, when that happens, if the kids policies have another loan on outstanding because she's been using them again. They all get retired again and they're replenished. Well, at that point in time, my kids could be in their 60s. Well, when that happens, that's like going backwards 60 years and getting a brand new policy and backdating at 60 years. I mean, it's unbelievable. It's unfathomable how powerful that could be. You can't. You can't do that with an RSP. You can't backdate RSP contribution 60 years, can you?

No, not.

No, you can't. You can't income split them 60 years in the past. None of those other things you can do. The only place you can do that is really with a piece of life insurance, but you have to have it set up 60 years ago. Well, we've already done that.

Y.

And if you haven't done that and you're listening, you should probably think about it. It's not a bad idea.

Exactly. Good point. Love that one.

Well, this is a lot of fun, Dan. I appreciate it. Thank you for sharing some of your knowledge, more importantly, your. Your stories and your experience of. Of what you've already done and accomplished in your own life. I think it's very helpful for people to see that and go through the experience through the eyes of another. So I appreciate you and all the value you bring to our team. Thank you so much. And for those of you watching on YouTube. Bam. Check it out. Right down or down below, there's another beautiful video. It's saying, watch me, watch me, please. Go ahead. Thanks so much.

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