Tax Quarry

(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 31^st.

4.                  Apply year-end bonuses to your RRSP.  Consider depositing bonuses received from your employment before the December 31^st year-end.  Although, the RRSP deadline is not until around March 1^st 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.