Tax Planning Year-Round

March 1, 2016

Personal Tax Planning

All family members should file together because this allows everyone to maximize the best use of credits or transfer of unused credits from each other’s tax return (for spouse, common-law partner, children, certain relatives if they live with you), such as medical expenses which can be claimed on a family basis.

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Year-end sensitive tax planning Year-end tax planning ideas need to be implemented all year round because some of the planning may require expenditures on a monthly basis in order to benefit you by year-end.

Maximize your deductions and credits You must complete transactions for many items that qualify for tax deductions and credits by December 31 each year-end, to qualify, including: medical expenses, tuition fees, child care costs, charitable and political contributions, child support and alimony, safety deposit box fees, deductible accounting and legal fees, professional fees, and union dues.

Contribute to a Registered Education Savings Plan (RESP) In order to qualify for the government-sponsored Canada Education Savings Grant you must make your annual RESP contribution before each year-end by December 31, to qualify.

Utilize TFSA Contributions TFSAs are becoming increasingly popular investment tools because you have the freedom to take your money out tax free. Please have a look at the mechanics of a TFSA. What are some of the differences between a TFSA and an RRSP?An RRSP is primarily intended for retirement savings. Tax assistance provided by a TFSA complements that provided through RRSPs. RRSP contributions are tax-deductible while RRSP withdrawals are added to income and taxed at regular rates.TFSA contributions are not tax-deductible but the contributions and the investment earnings are exempt from tax upon withdrawal. Unlike an RRSP, which must be converted to a retirement income vehicle at age 71, a TFSA does not have any minimum withdrawal requirement.

Business Owners Tax Planning

If you own a business, where your children and/or your spouse work, consider paying them a reasonable salary from the business. If this is their only income, or they only work part-time elsewhere, they may not need to pay personal income tax if they earn below their personal tax exemption.

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If you own a business Pay yourself enough income before the year-end. Focus on allowing for your desired level of RRSP contribution room for the next tax year – perhaps even the maximum.

Capital Cost Allowance Business owners and some employees may claim capital cost allowance on depreciable business assets such as automobiles, aircraft and musical instruments required to be used in their business or employment. It makes sense to make the purchase prior to December 31 and take the first deduction in the current year versus purchasing early in the next year. Because you can claim the capital cost all year, this allows for a speedier use of the first deduction.

Keep your tax records for 7 years If you are audited, CRA can back-review your personal income tax returns for three years, or more. Without documentation (going as far back as seven years) such as copies of returns, RRSP contribution slips, medical receipts, support for self-employed revenue and receipts, all preparatory source documents, and T-slips, CRA can summarily assess your taxable income. Do your taxes right, and keep the proof. Avoid paying for past income tax, penalties and interest.

Be detailed in your record-keeping regarding your expenses Make sure they are allowed. CRA may investigate whether your deducted expenses were for personal use or for business use. So long as you can support these deductions with proper documentation, such as a detailed receipt, you’ll not create a tax liability. CRA is less interested in your income documentation.

 

 

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