TD Economics is examining ways investors can improve their tax position in light of the amendments proposed along with the recent income trust announcement.

It notes that the new tax on trusts overshadowed two tax measures announced to offset the potential impact on the investment income of older Canadians, the introduction of pension income splitting and the age tax credit enhancement. Combined, the pension income splitting and the age tax credit enhancement measures will cost the federal government more than $1 billion in lost revenues per year, it says.

TD explains in a research note how senior couples could potentially save money from these new tax initiatives. The note says that tax savings could come from any of four sources: the $1,000 age credit enhancement, pension income splitting to lessen the bite of the progressive tax rate structure, pension splitting to permit fuller use of tax credits, and pension splitting to increase net Old Age Security payments.

Some couples will capitalize on each of these four savings opportunities, whereas other couples will benefit just from a few. As result, the tax dollars saved will vary widely, it notes. For example, TD estimates that the total tax savings for a couple living on a single pension of $40,000 will be about $3,000, a drop of 30% in the total tax bill and 6% of total income. A couple living on a single pension of $100,000 will save about $8,700, or 37% in the total tax bill and 7% of total income.

While the new tax measures relate to federal taxes, TD says that sources of tax savings are similar at the provincial level, except that the total benefits will vary widely because of the wide divergence in tax structure from coast to coast.

The note also suggests that couples younger than 65 could also benefit from these measures. A couple aged under 65 will be eligible to split income that is coming from annuity payments from an employer-sponsored registered pension plan, it points out. Also, it maintains that for younger couples, knowing that pension income splitting will be possible in the future is a big advantage today. “It provides them with greater flexibility for their personal financial planning, retirement plan, and participation in the labour market,” it says.