Paying Less Tax Means More Money In Your Pocket!
Many of you are gathering your T-slips and tax information so you can get it to your accountants to file before April 30, 2000. With tax being the topic of the season, I will devote the next few articles to ideas on how to minimize tax.
Tax planning is more important than investment planning
Most people go to a financial or investment advisor in hopes of trying earn better rates of return – say 1%, 2%, 3% or up to 5% over time? In my opinion, that is good value, but you are far better off starting the investment process by doing some good tax planning because this can help you to earn benefits in the range of 10%, 20% and up to 40%. Investment planning incorporated with your tax planning is invaluable!
Tax planning for the future
If you are trying to do some tax planning for the 1999 tax year, you are too late. Good tax planning requires that action be taken in advance. Sometimes it can take years before you reap the true benefits of tax planning so be sure to prepare ahead of time. Right now is the ideal time to start looking at the year 2000 and beyond. This is especially true because the government has finally taken some significant steps towards tax reduction.
Dr. Sherry Cooper on tax
I recently had the pleasure of listening to Dr. Sherry Cooper, economist for Nesbit Burns and author of the Cooper Files. She is a die hard capitalist who makes some interesting points on tax. She believes that Canada needs to reduce taxes dramatically to ensure that we can compete effectively in the global market environment. We have the some of the highest corporate and personal tax rates in the world. This influential economist believes that lower taxes means more productivity, more spending and stronger growth in the economy. This increased productivity will lead to more government revenues not less!
Deduct, defer, divide
Proper tax planning starts with the basics, what I call the three D’s of tax.
Firstly, you must look for Tax Deductions. One example of a deduction is the RRSP because they offer a deduction from your other sources of income. This is precisely why RRSPs are so popular.
Next, consider Deferral of income. Most often it is better to pay a dollar of tax later than it is to pay it today. While that is not always the case, deferral of tax can make a significant difference over time..
Finally, divide your income. Imagine if you are a family earning $60,000 per year. If one person makes all the family income, they will pay approximately $19,500 in tax. If that income were divided between two people equally, the tax bill would drop to $15,400. That is over 20% in tax savings. Sometimes known as income splitting, tax dividing can make a huge difference.
Next week, I will talk about the new tax brackets in Canada. Knowing which tax bracket you are in is the next step to proper tax planning.