Tax time is here again. Penalties will be applied if you file later than April 30.
Demo advises that tax savings can be had if you work ahead, a year ahead and he also suggests that maximum savings are likeliest if you use professional assistance.
Saving Tax is an All-Year Job
For most individuals, April 30″‘ is the tax-filing deadline. Taxes are top of mind at this time as we deal with receipts and returns. Did you take action last year to reduce your tax bill for 2016? If the answer is no, perhaps you can do better this year. Here are five ways to help minimize your payables to the Canada Revenue Agency (CRA). “Reduce” Your Refund – If you receive a tax refund from the CRA on a regular basis, this shouldn’t be a cause for celebration. You’re effectively providing an interest-free loan to the government. If you are employed, consider completing a new TD1 form with your employer, which is used to calculate how much tax to deduct from your pay cheque. You may also file CRA Form T1213 if you know you’ll have significant deductions in a given year to reduce the tax taken from your pay.
Maximize Your RSP & TFSA
For registered Retirement Savings Plans (RSPs), consider setting up a monthly contribution plan: if you provide your employer with confirmation of the deductibility of these contributions, the employer may reduce the amount of tax withheld at source. Don’t underestimate the value of tax-free compounded growth through a Tax-Free Savings Account (TFSA) – ensure you have maximized your contribution.
Income-Split with Your Spouse
If your spouse/commonlaw partner (CLP) is in a lower tax bracket than you, consider income-splitting opportunities. Contribute to a spousal RSP There may be an opportunity to split investment income through a prescribed rate loan strategy with your spouse/CLP Seniors may consider splitting Canada Pension Plan benefits or eligible pension income.
Income-Split with Children
You may be able to create in-trust accounts for minor children that invest in assets to generate capital gains. The attribution rules will not apply to capital gains income earned by minor children but will need to be included in the child’s tax return. As well, consider a prescribed rate loan to a family trust.
If Over 64, Start a RIF
The pension income tax credit kicks in at age 65, allowing for a tax credit on up to $2,000 of eligible pension income. If you don’t have a company pension, consider setting up a small RIF for the year you turn 65 (or sooner if you are widowed) in order to create eligible pension income. Remember that you don’t have to convert your RSP into an RIF until the year that you turn age 71, so this may be a great way to take advantage of the pension tax credit.
Of course, these ideas and others depend on your own personal circumstances. Please seek the advice of a professional tax accountant, or call if you have questions. Now is the time to take action to maximize your tax savings for 2017!
TD Wealth Management
Ph: 905 707 6132