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Year-End Tax Planning Tips

(First published in SWAY Magazine)

Another year has passed and many of us are trying to recover from the financial hole we dug for ourselves into during the holiday season.  Some people are slowly paying down this debt by adding another monthly expense to their already meagre monthly income, while others are hoping for a cash windfall to get their head above water again.  This windfall for many will come in the form of a tax refund.  But for those who failed to plan, they may find that they are getting a smaller refund than they otherwise would have had coming their way.  To make sure that you don’t fall into this predicament again, follow these five tax planning tips:

1.                  Be a cheerful giver.  Individuals who contribute to a registered charity throughout the year can claim a charitable tax credit.  Donations do not have to be in the form of cash.  Contributions can be shares, bonds or insurance policies.  Where capital property such as shares or bonds are contributed, there are special rules that govern the treatment of capital gains.  Please consult a professional tax advisor for more information on how this works.

2.                  Benefit from your losses.  For those who invest in the stock market, if any of your stocks have accrued losses, consider selling them before the end of the year so that they can be used to offset any capital gains you may have.  Kurt Henry of Amasis Financial (http://www.amasisfinancial.com/Index-1.html) recommends tracking your gains throughout the year and carry-forward gains from previous year so that you are prepared to sell losing securities by the end of the year.  Obtain investment advice before making this decision, as there are rules that may deny the loss in certain situations. 

3.                  Invest in your children’s future.  To assist families with the cost of education for their children, the government offers a Canada Education Savings Grant (“CESG”) for contributions to Registered Education Savings Plans “RESP”.  The CESG is equal to 20% of the first $2,000 of contributions made for each child.  The rules have been modified to provide a higher CESG for families with lower incomes.  To be eligible for the grant, contributions must be made before December 31st.

4.                  Apply year-end bonuses to your RRSP.  Consider depositing bonuses received from your employment before the December 31st year-end.  Although, the RRSP deadline is not until around March 1st of the following year, direct payments will ensure the money is not spent on exorbitant Christmas expenses but instead it can be used to maximize tax returns to assist with the post-Christmas financial crunch.

5.                  Take the better way.  If you are able to commute using public transit rather than the car, you can take advantage of the Public Transit Tax Credit for monthly transit passes purchased by you, your spouse or common-law partner.  Remember to keep all receipts for passes purchased for travel on local busses, streetcars, subways, commuter trains, commuter buses or ferries.

Good tax planning is proactive rather than reactive, and the rules are constantly changing so consult a tax professional to assist you with the process early in the year.  This will help to reduce your taxes, maximize your income and start with a clean slate in the New Year.

Dangling the Tax Incentive Carrot to Encourage Participation in Fitness Programs: What is the healthiest approach?

In April 2006, the decision of the Federal Court of Canada in AYSA Amateur Youth Soccer Association v. CRA[i] upheld the CRA’s determination that AYSA was not a charitable organization under the Income Tax Act (Canada)[1] because it was established to promote a sport.  Although, as the decision indicates, historically provincial amateur athletic programs have not been eligible to receive creditable or deductible donations, in light of the recent statistics that report a substantial increase in Canadian child obesity rates and predictions about the strain obesity related illness and disabilities will have on our health care system, it appears that it is time that the courts or the legislature revisit this issue.  The courts will have this opportunity sooner than expected.  In June 2006, AYSA’s leave to appeal to the Supreme Court of Canada was granted. 

In the interim, the government has proposed a different approach to increasing fitness levels for Canadian children and youth.  The Children’s Fitness Tax Credit proposal, announced in the government’s May 2006 Budget, shortly after the AYSA Federal Court of Canada decision, attempts to create an equally attractive alternative to the charitable tax credit.  However, the proposal does not appear to be the best solution for all Canadians.

Outline of Fitness Tax Credit

In Budget 2006, the Conservative government proposed to introduce the Children’s Fitness Tax Credit.  In October 2006, Finance Minister Flaherty received a Report of the Expert Panel for the Children’s Fitness Tax Credit that provided recommendations for meeting the objective of the credit.[ii]  The recommendations are based on the government’s proposal to provide parents with a

[1] RSC 1985, c. 1 (5th Supp.), as amended (herein referred to as the “Act”).  Unless otherwise stated, all statutory references herein are to the Act.

[i] 2006 FCA 136. (Hereinafter, “AYSA”).

[ii] Canada, Department of Finance, Report of the Expert Panel for the Children's Fitness Tax Credit (Ottawa: Department of Finance, October 26, 2006).

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