STRATEGIES TO SAVE TAX
AND MAXIMIZE YOUR WEALTH
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Don’t wait until the last minute!
Income tax season is upon us and the more organized you are, the more likely you or your tax professional will be able to take advantage of deductions and credits on your tax return to maximize your wealth. Strategies to minimize your taxes are one of the components to an integrated approach to your tax and estate planning.
Time equals money: Claim all relevant deductions on your tax return
Investing time and effort as you prepare your personal tax returns can result in substantial tax savings. The following strategies should assist you in identifying potential opportunities to reduce taxes and enhance your family’s wealth.
Sometimes it pays to wait: Consider deferring certain discretionary deductions
- Pension income splitting – allows a higher income spouse to allocate up to one half of their pension income to their lower income spouse.
- Carrying charges and interest paid – provided these expenses are for non-registered investments and are not considered commissions, they may be deductible. Commissions may be deducted in calculating your taxable capital gains/losses.
- Child care expenses – claimable by the lower income parent who works or attends school, subject to certain limitations.
- Moving expenses – you may be able to claim moving expenses where you moved closer to your place of employment or school.
- Employment expenses – you may claim certain expenses to earn employment income. And, where you earn commission income the deductions available to you are increased but may be limited to your commission income.
If you expect your marginal tax rate to increase in the future, you may want to consider waiting until a future year to claim certain deductions to maximize your tax savings.
Take credit: Utilize the many tax credits available
- Capital cost allowance (CCA) – the amortized cost of a capital asset is discretionary and may be carried forward for future use indefinitely.
- RRSP deductions – you may contribute to an RRSP and have the investment accumulate on a tax-deferred basis. However, if you are in a low tax bracket and expect to be in a higher one in the future, you may want to consider deducting the contribution in future years when you may benefit from larger tax savings.
Non-refundable credits reduce your federal and provincial taxes. In addition to the credits highlighted below, some typical credits are: basic personal amount, age amount, spouse or common-law partner amounts, pension amount, CPP and EI contributions, Canada Employment, Public Transit and Children’s Fitness Amount. Note that these credits may be subject to reductions or restrictions.
The countdown is on: Filing deadlines
- Credit splitting – if you have insufficient income to utilize certain tax credits you may be able to transfer certain credits to your spouse.
- Charitable donations – combine your family’s donations and claim on one return. Unlike other non-refundable tax credits, the charitable donation credit operates on a two-tier credit system. The first $200 provides a credit of approximately 25% and 45% for amounts over $200, depending on province of residence.
- Medical expense credit – to maximize your credits, combine your family’s medical expenses and consider claiming them on the lower income spouse’s tax return. In addition, you are eligible to claim medical expenses for any 12 month period ending in the year. Claiming medical expenses in a 12 month period with a lower 3% threshold should increase your entitlement to the medical expense credit. A comparison of both options should be reviewed to ensure that the best after-tax alternative is chosen.
The filing deadline for most individuals is April 30th, 2012. However, if you, your spouse or common-law partner carried on a business in 2011, then neither of you is required to file until June 15th, 2012. However; if you owe taxes you should still pay your balance by April 30th in order to avoid penalties and interest.
Please note that these tax tips are general in nature to help you identify opportunities. Since tax filing can be complex and ever changing, we recommend that you speak to your personal tax advisor about your specific situation prior to filing your return.
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To receive our complimentary publication “2010-2011 Tax Planning Checklist” outlining these and more tax and estate planning strategies that may be used in conjunction with any recommendations and advice provided by your professional investment, legal and tax advisors, please contact your Richardson GMP Investment Advisor.