Tax Planning

Top Ten Tax Planning Tips

1. Treat Tax Loss/gains Effectively: Offset capital gains by losses generated in the year 2003. You can carry back losses to recover taxes paid in prior years or generated capital gains to use up exempt gains balances left over from the 1994 capital gain election.
2. Contribute to Your RRSP: Because 90% of Canadians fail to top up their RRSP contribution room, it pays to remind yourself all year long that double digit returns results from the tax savings offered by an RRSP contribution. At a year end you can also consider gifting an RRSP to your family members. When you add the tax savings to the deferred taxation on the earning within the plan, you are given an added bonus! As well, remember you have leveraging opportunities by accessing RRSP funds to go back to school (Lifelong Learning Plan) or buy a home (Home Buyer's Plan). The RRSP contribution is also instrumental in increasing refundable tax credits like Child Tax Benefit. It all adds up to an investment you cannot afford not to make an RRSP contribution.
3. Maximize Your Tax Deductions: Taxpayers chronically under-report eligible deductions including moving expenses, child care expenses, employment deductions, and carrying charges. Taken together with chronic under contributions to RRSP, means that net income is being overstated in many cases, causing taxpayers to lose out on the full benefits they could be entitled to under non-refundable and refundable tax credits. It also means they may be over exposed to claw backs of the Age Amount, Old Age Security (OAS) and Employment Insurance benefits.
4. Adjust Prior Error and Omissions: If you find that you missed a tax deduction or credit, you can adjust most federal provisions under Canada Custom and Revenue Agency's (CCRA) Fairness Package all the way back to 1985. Simply ask your tax advisor with the applicable receipts for an adjustment. This can make for a lucrative and a most welcome bonus, especially if you are looking for a creative way to have funds for an RRSP contribution or to pay towards a debt.
5. File Returns with a Family View: There are many ways to do a tax return mathematically correctly, even CCRA would mathematically correct your tax return. But your goal should be to file the family's tax returns to the best benefit of the entire household. Remember that spouses are able to act as agents for one another regarding certain tax provisions: the claiming of dividends, medical expenses, charitable donations and political contributions, for example. Make the decisions on who should claim what, preferably before a year end to maximize potential savings. It makes sense your tax advisor prepare tax return for your entire family.
6. Transfer Non-Refundable Tax Credits Amongst Family: Amounts that can be transferred from the lower earning spouse to the higher income earner include the age amount, pension income amount, disability amount, and tuition and education amounts. The latter credits can also be transferred from a child or grand child to supporting individual, to a maximum of $5,000 per year. For these reasons, it pays to watch net income level of all family members. Reducing net income of the lower earners-possibly with RRSP contributions can pay off for higher earners. So, once again minimize net income of both spouses.
7. File Returns for Minors: If you have a child age 18 who has little or no income, be sure to file a tax return. This will generate a GST rebate in the quarter after the child turns 19, and accumulate RRSP contribution room on actively earned income sources, to assist with maximization of non-refundable tax credit provision. If you missed that then ask your tax advisor to file tax returns in retrospect. A nice gift for your teenager!
8. Minimize Taxes on Self Employed Earnings: Proprietors should be sure to fill up the gas tank, buy those office supplies, reward special clients with gifts or pay year-end bonuses to staff, all before a year end to reap tax benefits sooner. It may also make sense to acquire new assets at year-end to initiate half-year rules on capital cost allowances in the current tax year. Not doing so, you will have to wait until the following year to recover benefits.
9. Reduce Tax Withholding on next Year's Employment Earnings: Contrary to their popularity, refunds are not a good thing! If your average tax refund is $1000 a year or more, give your head a shake. That's money that should have been working for you all year long. Ask your tax preparer to add on the deductions if they don't show up on TD1: RRSP contributions, significant medical expenses, charitable donations, child care or other deductions to get your refund every two weeks instead of at the end of the year. Then ask your financial advisor to set biweekly a systematic investment plan for the same amount, to make that money working for you all along. Same principle applies to quarterly installment payments: pay only the correct amount, not one cent more. Remember that you can adjust your installments if your income as dropped significantly from the prior year.
10. File Family Tax Returns on Time to Avoid Late Filing Charges: For individuals, the deadline is April 30 if they owe money, as the interest clock starts ticking on May 1. Remember that the late filing penalty will only kick in if you owe. However, there is also a penalty for those who receive a refund and fail to file on time: your money will not be earning any investment income and will in fact become eroded by inflation. It always pays to file on time and put your money to work for you!

You may contact your Shah Financial Advisor for more information and advice.