Monday, April 14, 2008

Pension Income Splitting...Sweet!

Every year I force myself to do my own income tax and I spend the $50 or so to buy QuickTax to try and ease the pain of it all.

This year, without pension splitting our total refund would have been ~$5,000. I know I could reduce this refund but I have my emotional/fussy logic reasons for keeping it that high. But...back to the point-- with the new Canadian 2007 pension income splitting allowance our total refund comes to about $6,000. An increase of just over $1,000.

The second point I want to make is that 2007 QuickTax doesn't optimise the transfer amount, it just inserts the maximum 50% transfer. The summary graph (a nice feature) looked lob sided to me so I used the old trial and error, bracket approach method to search for an optimum transfer amount.

I tried changing the T1032 transfer amount in increments of several thousand dollars from a low of $2,000 to the max of ~$18,000 and found that I increased our total refund from ~$800 up to just over $1,000. Our optimum transfer amount was in the vicinity of $16,000.

When I saw that there was indeed an optimum amount somewhere...that is, the total refund went up as the transfer amount increased, then it started to go down as the amount increased beyond a certain transfer amount, I went back and used smaller increments of several hundred dollars to bracket and zero in on the optimum amount. It turns out there was a range of about $1,000 that provided the same total maximum refund.

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