If you and your spouse are in different tax brackets, here’s an easy and highly effective way to save tax on income and growth of non-registered mutual fund investments.

The lower-income spouse has less income available to invest, especially when both spouses cover household expenses. With this strategy, the higher-income spouse pays all the couple’s or family’s household expenses and their spouse’s personal expenses. Now the lower-income spouse has more money to invest. When they invest these freed-up amounts in a non-registered account, the mutual fund investments are taxable at the lower-income spouse’s more favourable tax rate.

To make this method even more effective, the higher-income spouse can pay their spouse’s income tax owing – freeing up more money for the lower-income spouse to invest.

With this strategy, you and your spouse may want to keep separate bank and investment accounts, in case the Canada Revenue Agency (CRA) wants to know about the lower-income spouse’s ability to invest.