Tax season is now in full gear and many of your clients may be disappointed to learn they’re getting nothing from new family tax Cct credit, which provides a form of income splitting. In fact the credit, which was introduced in October 2014 and is available for the first time on the 2014 tax return, is only expected to benefit 15% of Canadian families, according to a Parliamentary Budget Officer report released in March.

The family tax cut is a form of income splitting that allows an individual to transfer up to $50,000 of income notionally to his or her lower-income spouse or partner — provided the couple has a child who was younger than 18 at the end of the year. As the credit is capped at $2,000 to limit the governmental cost of the program, estimated at $2.2 billion this year, I like to refer to the new credit as “fake” income splitting.

That’s why other forms of more traditional income splitting can be far more valuable to your clients. Here are four of them:

1. Pension splitting

This gives individuals the ability to split up to half of their pension income with a spouse or partner. Any pension income that qualifies for the $2,000 federal pension income credit also qualifies to be split. Specifically, this would include annuity-type payments from a registered pension plan (RPP), regardless of age, and also includes registered retirement income funds (RRIFs) or life income fund withdrawals upon reaching age 65.

Clients who are at least 65 years of age may want to consider converting a portion of their RRSPs to RRIFs so they can benefit from pension splitting. Any withdrawals from a RRIF qualify for pension splitting while RRSP withdrawals (at any age) are not eligible to be split.

2. Spousal RRSPs (RRIFs)

If one spouse is expected to have a higher income or has accumulated more retirement assets than his or her spouse in retirement, it may be beneficial to have the higher-income earner contribute to a spousal RRSP. But are spousal RRSPs still relevant given the ability to split RRIF income? In my opinion, they are.

First of all, spousal RRSPs allow an individual to split more than 50% of his or her pension income. In fact, with a spousal RRSP, you could effectively tax 100% of the RRSP income in a lower-income spouse’s hands.

Second, thanks primarily to the definition of pension income, if an individual is under 65, eligible pension income typically only includes annuity payments from an RPP and will not generally include amounts paid from an RRSP or RRIF. So, anyone who wants to split his or her income before age 65 and does not have an RPP should still consider the use of spousal RRSP contributions, which would allow the ultimate withdrawals to be taxed in a lower-income spouse’s hands without having to wait until age 65.

3. The higher-income earner pays all expenses

Another very simple yet highly effective strategy is to have the higher-income earning spouse pay all the household expenses while the lower-income earner does all the non-registered investing. This way, investment returns on the non-registered investments are taxed at a lower tax rate than they would have been had the spouse who faces the higher tax rate made the investments.

4. Prescribed rate loans for spouses and children

Savvy couples have used spousal loans for many years, but they are exceptionally attractive now as the prescribed interest rate is currently at a historical low of 1%, which is also the lowest rate possible, until at least June 30. If the loan is advanced at the current 1% rate, this rate may be used for the duration of the loan, which could be unlimited if there is no fixed term and it is simply a demand loan.

The loan should be supported by a properly drafted loan agreement, and interest on the loan must be paid within 30 days of the end of the calendar year (i.e. Jan. 30), starting the year after the loan is made. The investment returns, net of the tax-deductible interest on the loan, can then be taxed in the lower-income spouse’s hands.

The spousal loan strategy can be expanded to help pay for children’s expenses, such as hockey or private school, if the prescribed rate loan is made to a family trust.

For a closer look at all of these strategies, read my latest report: The Great Divide: Income splitting strategies can lower your family’s taxes.