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Managing Your Money
Last-minute tax return tips that can add up to more tax-savings for you
It's tax time! And while preparing your tax return is never fun, you can make it more 'rewarding' by taking full advantage of all the tax credits and tax deductions available to you. Here are a few easy tax tips calculated to relieve your tax-prep stress and put more jingle in your pocket.
Toe the line. For most taxpayers, the tax-filing deadline is April 30th. Those with self-employed income have until June 15th to file, but the payment of any taxes owing for the year is still due by April 30th. Missing the filing/payment deadline will cost you. There's an initial penalty of 5% on all taxes owing after the deadline, plus 1% a month on your unpaid balance, to a maximum of 12 months. And if you filed a late return in any of the previous three years, the penalty could be even higher.
Pay the piper. If you file on time but don't pay all owed taxes, you'll be assessed interest at the Canada Revenue Agency's (CRA) prescribed rate. (The prescribed rate on overdue taxes -- which is set each quarter -- for the first quarter and second quarter of 2004 was 7%.) This interest assessment may also apply if you're late with a quarterly income tax payment.
Check before you cheque. Even in this computer age, mathematical errors are still the most common mistakes made by tax filers. Make sure your calculations are accurate to avoid an overtaxed return.
Deduce all deductions. Tax deductions reduce the amount of income subject to tax, and can also reduce your marginal tax rate - so take full advantage of them. One of the most important is your Registered Savings Plan (RSP) deduction. Always make your maximum RSP contribution and use up any carryforward contribution room -- you'll not only save on taxes, you'll also enhance your RSP's growth potential.
Other often overlooked deductions include: the16% federal credit for Canada (or Quebec) Pension Plan (CCP/QPP) contributions and Employment Insurance (EI) premiums; spousal support payments; interest charges on loans to purchase income-producing assets; accounting fees and safety deposit box fees associated with investments; union and professional dues; company pension plan contributions; certain moving expenses; expenses and capital losses related to self-employment; realized capital losses from the sale of non-registered investments to the extent they can be applied against realized capital gains; and the possibility of child-care expenses for a working parent or student.
Give yourself full credit. Tax credits directly reduce your tax bill. To maximize the tax credit on medical expenses, pool them on the tax return of the lower earning spouse. The tax credit for charitable donations increases substantially above the $200 threshold - so pool your donations or carry them forward for up to five years to surpass the threshold. [Not clear whether you can pool charitable donations with those of your spouse - although this may be implied b/c you can pool medical expenses with your spouse. Yes, this can be done] The equivalent spouse credit is available to an unmarried person who supports a family member. A higher-earning spouse may be able to claim a spousal credit, which decreases as the spouse's income increases. Certain credits - such as the age credit, disability credit, tuition and education credits - can be transferred to a spouse or supporting relative when not used by a dependent.
If you take the time to read the tax guide the government sends along with your tax forms, you'll save both time and money. And to make sure you've taken full advantage of all the tax breaks coming to you in ways that match your longer-term financial goals, put a professional financial advisor on your tax team.
This column, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant.
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Put your tax priorities in the right order and save every year
The tax filing deadline dance is becoming more frenzied by the day as Canadians from coast-to-coast perform amazing fiscal gyrations to the relentless beat of the looming April 30th tax filing date. That's tax preparation for you - the annual sweat-inducing, sleep-robbing activity that ends with a huge sigh of relief the moment our tax return gets tucked through the post box slot.
Tax preparation is important, of course. But this year, instead of gleefully putting taxing issues behind you with the mailing of your 2003 return, why not turn your tax-fevered mind to a few easy tax planning strategies that can help reduce the amount of taxes you'll pay next year and deliver longer term financial rewards, as well. Here are a few tax preparation Info Tips (ITs) to get you going.
Record IT. Make it easier to track your finances for tax purposes by setting up a simple record-keeping system for income and expenditures -- and maintain it faithfully throughout the year.
RRSP IT. A Registered Retirement Savings Plan (RRSP) is the best tax-reducing, savings-building method for most Canadians. Be sure to make your maximum (tax-saving) contribution each year and do it as early as possible. Contribute more, faster and the tax deferral offered by your RRSP can result in compound growth that will produce an even bigger retirement income.
Share IT. If you're likely to generate more income than your spouse in retirement, consider a Spousal RRSP. Your spousal contributions deliver an RRSP tax break for you (up to your personal limits) and, by helping to equalize income streams with your spouse during retirement, you'll enjoy a lower combined tax bill.
Invest IT. Employ an investment strategy that reduces taxes by holding investments that provide tax preferred income (those that deliver income from capital gains or dividends and enjoy a preferential tax rate) outside your RRSP and more 'heavily' taxed investments (those that deliver interest income, which is usually taxed at your marginal rate) inside your RRSP where this income can grow on a tax-deferred basis.
Kid IT. Invest child tax benefits in the child's name. The income is taxed in the child's hands and will likely be lower than the tax-paying threshold for the child.
Borrow IT. When you make a loan for business or investment purposes (where there is a reasonable expectation it will generate income), the loan interest is usually tax deductible.
Pay IT. Avoid penalties and interest by making required quarterly personal income payments on time.
Refund IT. A refund is nice to get - but it also means you've made an interest-free loan to the government of money that should be working for you. Request a reduction in the amount of tax withheld at source where you are entitled to tax deductions or tax credits.
Roll-over IT. If your 69th birthday falls during 2004, the law requires you to wind down your RRSP by December 31st. Avoid a big tax hit by exploring your 'roll-over' options early in the year.
Move IT or Lose IT. Relocating to a new province with a lower tax rate? Do it before December 31st and you'll pay the 'cheaper' provincial tax rate for the entire year.
Tax planning should be an integral part of your overall financial plan aimed at realizing your life dreams. A financial planner can help make your financial life less taxing and more rewarding this year … and every year.
This column, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant.
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