In a perfect world, we would enjoy a stable and understandable taxation environment, with taxes at a much lower level than today. Sadly, that is not the case. While one could argue that many of the recent initiatives from the federal government are pointing in that direction, the pathway itself is bound to be convoluted.

Income Trusts

Pension Splitting

One of the major problems couples face when planning for their retirement has been the tax consequences stemming from un-equal retirement incomes. Unequal income at retirement would result, for example, if one spouse has a pension plan and one does not, or if one spouse has a large RRSP and the other does not. Overall taxation of the “family” income would be lower if the individual income streams at retirement were more balanced. Until now it was only possible to redress some of the ultimate imbalance by build-ing up a “spousal RRSP” for the lower-income spouse and by the sharing of Canada Pension Plan benefits. The new proposal by the government is meant to allow for the splitting of all “qualified” pension income after age 65. This would appear to include income not only from private pension plans but also from registered retirement income fund (RRIF) accounts (our spring 2006 edition of The Fra-ser Report featured an article on understanding RRIFs). While all the details of this proposal have not yet been made clear, the result will be a net reduction of taxes levied on many families throughout their retirement years.

Fall Economic Statement

On November 23, Finance Minister Jim Flaherty released the federal government’s fall economic and fiscal update, in which con-tinuing budgetary surpluses are forecast for the next five years. Also released was a policy outline indicating that the expected sur-pluses will go to paying down the federal debt. As debt is reduced, interest payments on the debt would fall, and any reduction in in-terest payments would, in turn, be dedicated to personal tax cuts. This is now just a “plan” by a minority government and not a formal budget proposal. Nonetheless, it is a very clear statement of how the present government intends to proceed, and that intention seems to be toward greater certainty and lower taxes.

There has also been some speculation that further reductions or deferment of capital gains taxes are being considered. We will be following all of this very closely over the next few months, and the full picture should be much clearer when the federal budget is brought down in the spring. Stay tuned!