TAX TIPS

Have a tax-efficient plan: People who become wealthy follow a consistent, purposeful process for thinking about their earning and savings.

Cut withholding taxes: Employees should complete the TD1 Personal Tax Credit Return and its sister, Form T1213 Request to reduce tax deductions at source, to reduce withholding taxes or instalments to pay just right amount of tax all year long.

Earn tax-free benefits: These include:

• Premiums paid by your employer to private health care plans. Premiums paid under provincial hospitalization and medical care insurance plans are taxable.
• If you paid all of the premiums to a wage loss replacement plan, then periodic payments (or a lump sum paid in lieu of periodic payments) from the plan are tax-free and should not be reported on an information slip.
• Employees who use their company car less than 50 per cent for business should discuss the reduction of standby charges with their payroll department.
• Employees who are required by their employers to move, can negotiate a reimbursement of up to $15,000 on a tax free basis, to cover losses on the sale of their home, with half the amount over this eligible for the same tax free treatment as well.

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Manage debt: Use the time value of money to your advantage, not that of your creditors. That means reducing non-deductible debt and increasing savings opportunities.

Reduce management fees: Doing so can make up for the cost of inflation and tax erosion. Consult on which fees are tax deductible.

Average down your tax bite: Time withdrawals to minimize taxes and split income with family members where possible. That’s a great way to “average down” your tax bite, especially on retirement income.

Tax, Your Do-It-Yourself Guide to Filing Taxes Online.

1. Plan when to move?

Provincial taxes for the year are based on your province of residence on December 31. That means if you lived in Ontario until January, you’ll file an Ontario return even though you now live inManitoba. If a move is in your future, do some tax planning now. Moves to more highly taxed provinces should therefore be planned for the start of a tax year. Moves to provinces with a lower tax rate are best planned for later in the year so that the lower tax rates apply to the whole year.

2. Avoid claw backs — Do some RRSP planning

It’s a good idea to keep an eye on your family’s individual and combined “net income.” It’s one of the most important lines on the tax return because of its impact on the size of your refundable and non-refundable tax credits. You can reduce net income by making an RRSP contribution. That will increase your credits and your after-tax cash flow, too. Be sure to make that RRSP contribution, if you have the required contribution room, by the deadline.

3. Bus passes and transit costs

Riding the bus or subway? Remind all family members to keep receipts because you may be able to make a claim on your tax return for the costs. In fact, either spouse may claim the public transit costs for the entire family, including dependent children under 19. There is no maximum amount, but the passes must be for monthly services and provide for at least 32 one-way trips in a month or cover 5 to 7 days. In that case four consecutive weekly passes must be purchased. The services must be offered to the general public and so, unfortunately, private bus or limo services won’t count.

4. When is income tax exempt?

The best kind of income is the tax-free kind. The income you earn in your Tax Free Savings Account is, as the name implies, tax free. Income exempted by a statute, such as the Indian Act, is also tax exempt, as are certain war veterans’ allowances and pensions. Charitable Canadians can also avoid tax on the capital gains they earn on their investments in publicly traded shares when they donate them to a registered charity or private foundation. Life insurance benefits, inheritances, gains on the sale of your principal residence and lottery winnings all win the prize for tax efficiency: none of them are reported on the tax return.

5. Is your tax refund too big?

While most people are happy to get a big tax refund, the government makes no interest payments on the use of your money all year long. That makes overpaying your taxes a bad investment. You will want to change that as you become more tax savvy by filing payroll tax forms that specify all your personal tax credits and deductions to reduce taxes payable with your employer so withholding taxes can be reduced. Commission salespeople may also adjust withholding taxes to take into account related sales and travelling expenses too. See your tax professional for help.

6. Reduce tax on severance

Employees who leave their jobs and receive retiring allowances should include an RRSP strategy in their planning. Whenever possible, avoid adding a lump sum into income in one tax year. The trick is to avoid the next higher tax bracket and rates; which makes tax and legal advice valuable before you sign off. You might take your severance over two tax years, for example. If you incurred legal fees to collect the money, you might be able to deduct them. But deductible legal fees must be reduced by the amount of the severance transferred to your RRSP. Unclaimed fees may be carried forward up to seven years.