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Reduce your tax bill: the three Ds of taxation

Simon Houle

Update :
Update :
May 24, 2017

Tax time is now over. Like many Quebecers, you may have been surprised by your tax bill and have resolved to implement a strategy to pay less in the future.

Good tax planning helps you avoid giving too much to the government year after year and keep more in your pocket to help you achieve financial independence more quickly. This planning involves the three Ds of taxation: Deduct, Divide and Defer.


A deduction allows you to reduce your taxable income by the same amount and thus obtain a tax reduction equivalent to the marginal rate. The higher your taxable income, the more advantageous this strategy is because the deduction is made at a higher marginal rate. Here are some examples of deductions:

  • Contributions to an RRSP;
  • Contributions to a pension fund;
  • Interest on a loan related to an investment;
  • Moving expenses;
  • Job-related expenses;
  • Professional fees;
  • Child care expenses.

Split (income splitting)

Tax splitting - more often referred to as income splitting - is the practice of dividing household income among more than one member to lower the tax bill. For example, a couple where each spouse has a taxable income of $50,000 will pay $8,500 less tax than a couple where one spouse has a taxable income of $100,000 and the other $0. Income splitting strategies include:

  • Contribute to a joint RRSP;
  • Divide QPP benefits between spouses;
  • Split pension income between spouses;
  • Contribute to an RESP;
  • Pay a reasonable salary to family members (using a company);
  • Split income from registered plans such as RRIFs and LIFs;
  • Use a family trust;
  • Income splitting for a family with minor children.


Wherever possible, taxes should be deferred. That way, returns can be generated on the amount of tax deferred rather than sending it immediately to the government. By deferring taxes over a long period of time - for example, by using exchange-traded funds in your investment portfolio - the increase in after-tax returns can be significant. In addition to using exchange-traded funds, the most common tax-deferral strategies are using RRSPs, RESPs, TFSAs and pension funds.


Even if it is sometimes difficult to keep up to date with the tax system, given the possible changes with each new budget, the three Ds of taxation will remain the basis of good tax planning. It is important to master them or to trust a professional who can help you.