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Mid year is a great time to review your tax planning. Tax planning is a year round affair - don't leave it until the last minute. Taxes can be reduced to the lowest possible amount by reviewing your plans on a regular basis.
Here are 20 tips to consider:
1. Contribute the maximum amount possible to an RRSP as early as possible in the year. Consider spousal RRSPs to take advantage of income splitting.
2. Charitable donations should be claimed by one spouse to avoid double application of limits. Unused amounts can be carried forward.
3. Medical expenses should be claimed by the lower income spouse to maximize the claim. Consider accelerating expenses to maximize the claim.
4. Keep all medical receipts and select a year ending in the taxation year as your claim period to maximize your claim.
5. Given a choice, borrow for investment and business purposes, and use cash for personal expenditures.
6. Deposit child tax benefits in a separate account in your child's name. The child will be taxed on any income earned.
7. Child care expenses can be claimed by a higher income spouse under circumstances where the lower net income spouse is infirm, in prison, a full time student at a designated educational institution, or separated for at least 90 days.
8. Keep all your receipts for expenses claimed. Many claims do not require receipts to be submitted but they must be kept to support your claim.
9. File your income tax return as early as possible, if you are receiving a refund, to avoid lost interest.
10. If you are in receipt of foreign business or investment income, you are eligible for a foreign tax credit.
11. A higher income spouse should file a designation to split any pension payments, with the exception of Canada Pension payments, with their spouse.
12. Ensure ownership of capital property is done in such a manner to maximize your eligibility for the capital gains exemption. This applies to qualified farm property and shares in qualifying small business corporations.
13. Consider family trusts for children. Capital gains are taxed in your child's hands and not the parents.
14. Review ownership of real estate such as cottages, homes, etc. to determine if the family's overall tax plan is effective. There is one principal residence exemption per family. Adult children living away from home are considered separate families.
15. If you have capital losses consider selling the investment to realize the losses for tax purposes. The losses can be applied to reduce gains in the current or three prior taxation years. The result is a tax refund, for taxes paid in the past, or a reduction in the current year's tax.
16. Invest in a Registered Education Savings Plan ("RESP"). There is no immediate tax deduction for the contributions but the income is taxed in the child's hands when withdrawn. There is also a matching government grant that increases your investment return.
17. If you are at retirement age make sure you receive at least $2,000 in the form of a RRIF or annuity each year. A pension credit of $2,000 is available making the first $2,000 tax-free for most people.
18. Transfer retiring allowances to your RRSP. Although the measure ended for service after 1995, it applies for service in 1995 or prior years. This option is available if you are terminated from employment this year or a future year and was employed in 1995 or prior years.
19. Pay a reasonable salary to your family members. This shifts income from the higher income spouse (or parent) to a lower income family member. This reduces family taxes.
20. Do not ignore correspondence received from CRA. Contact us to ensure that the matter is dealt with effectively.
If you need help, or clarification of any of these points contact our office.
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