In$-$Process Assignment #$3-$CASE STUDY$-$The Smiths'

Background Michael and Margaret Smith have been married for six years and have two year old twins. Michael works as a self$-$employed accountant from his home.

Margaret is a full$-$time post$-$graduate finance student and earns very little income throughout the year. Margaret does not have any investment accounts. She is thinking of starting her own small business so that she can begin to save for her retirement too.

Income: ichael owns his own business and earns $$120,000$ in revenue per year $($before business expenses, taxes, etc.$).$

Assets: RRSP$-$$$125,000($Michael$\text{'}$s$).$

Non$-$registered investment account$-$$$150,000$ of stock $($BMO shares$).$ Michael just purchased the BMO stock last year and unfortunately, it has not gone up in value since it was purchased, but the potential growth of this stock is terrific. In addition, the stock pays a $5\%$ dividend, which provides a very good return for Michael.

TSA$-$$$52,000($Michael$\text{'}$s$)$

REQUIRED:

Provide the Smith's with Four income splitting$/$tax planning strategies that they can implement immediatelv to reduce their tax burden.

Note:

Since each planning idea is worth $2$ marks each, students must provide sufficient details in their responses to show depth of understanding to receive full marks. If students only mention the strategy, without an accompanying explanation, then only part marks are to be awarded.