10 Year-Round Tax Tips
Posted 08 Jan 2015 by Natalie LeBlanc
Tax time is coming. We all know it, some people are probably dreading it, but soon enough it will be here. Tax minimization is something you should certainly speak with your advisor about, but here are a few general tips to make the April pain a little less painful:
1. Open a TFSA
The Tax-Free Savings Account allows Canadians to save and invest $5,500 a year and earn tax-free income and gains for life. Withdrawals aren’t taxed and they do not negatively affect your eligibility for government benefits. The TFSA also has carry-forward room, meaning if you haven’t contributed to a TFSA at all (or redeemed your previously set up TFSA before 2015) you can invest $36,500 in 2015.
2. Maximize your RRSP contributions
A Registered Retirement Savings Plan is an investment vehicle that allows you to save for your retirement on a tax-friendly basis. Funds you contribute are deducted from your income and therefore not taxed until you withdraw them. RRSPs also offer carry-forward room. Check your previous year’s Notice of Assessment to see the carry-forward room you may have.
3. Set up a Spousal RRSP
The primary benefit of a spousal RRSP is that funds withdrawn can generally be taxed in the hands of a lower-income spouse. The idea is that the spouse with the higher income, and therefore the higher RRSP deduction limit, would contribute to the spousal RRSP and the withdrawals during retirement years won't all have to be in the name of the higher income earner, lowering your tax bill in retirement.
4. Open RESPs for your children
Contributing to a Registered Educational Savings Plan lets you take advantage of the Canada Education Savings Grant, which is free money from the government. You may also be able to catch up on missed grants from prior years.
5. Explore Income Splitting
As announced in October 2014, couples with children under 18 may transfer up to $50,000 to the lower income spouse, lowering your tax bill. Be sure to investigate whether splitting a portion of income with your spouse or partner makes sense when you file your tax return.
6. Explore Family Tax Breaks
Also announced in October 2014, the Universal Childcare Benefit program has increased and families now see higher benefits paid. In addition, the Childcare Expense Deduction on your tax return has increased by $1,000. Be sure to claim these if you are eligible!
7. Double-Check your return
Before you send in your tax return, check first for accuracy. Make life easier and have a tax professional complete your return, use tax software, or an online service to ensure your numbers add up properly. Avoiding simple mistakes can help your return get processed quicker. Make sure you’ve reported all the money you’ve received. If you forgot something, the CRA will eventually find it as they get a copy of all information slips you receive. Any errors or ommissions can slow down the return process or cause the need for an adjustment.
8. File your Tax Return!
Some people argue that the only way to ensure your tax return doesn’t get audited is to not file a tax return. Non-filers risk getting caught and getting hit with interest and penalty fees.
9. Don't Cheat
The CRA has identified industries with a higher incidence of cheaters, such as construction, subcontractors, unregistered vehicle sales, auto repair, direct sales, childcare, cleaning, and restaurants. If you work in one of these industries, you are more likely to hear from the CRA so take extra care to ensure accuracy.
10. Review your organization & filing system
Now is a great time to sit down and make sure you’re on track for the 2014 tax year and that nothing is missing or lost thus far. Most tax slips for the year will arrive in the coming months, but be sure you will remember things like charitable donations for which you have receipts filed away, hopefully somewhere you remember!
Bearing some of these tips in mind we hope will alleviate some of the pressure in March and April, and help you feel organized and prepared for the bill (or refund!) coming your way. Speak to one of our advisors about tax minimization, and feel free to contact Vicki, our tax preparer, with any questions.