My first contribution to the Retire Happy Blog on the taxation authorities “Big Brother” monitoring of taxpayers income tax positions was a bit esoteric. So today I am going with a meat and potatoes listing of income tax tips you should consider over the coming year:
It is amazing how many of my clients misplace or lose income tax receipts. The most basic income tax tip is to create a file called “Income Tax Receipts” and place every donation, medical bill, safety deposit box receipt etc into that file.
Consider a low interest rate loan to your spouse to split income. Currently the Canada Revenue Agency (“CRA”) requires loans to a spouse to bear interest at only 1% and that rate stays in effect the entire time of the loan. If you already have a loan at a higher rate in place, it may be possible to “refresh” the loan. Refreshing requires professional advice and may come with some risk; you cannot just repay the loan and create a new loan.
Did you know that if you have capital losses and your spouse has capital gains you can transfer the losses to your spouse? See my blog article “Capital Loss Strategies” for details.
If you have any personal investment funds, consider paying down non-deductible debt with those monies and then borrowing to repurchase the investments. In effect you will have converted the non-deductible interest into deductible interest. Care is required to ensure you do not create an income tax liability when selling the investments.
Did you know that capital gains in your minor children’s name are not attributable to the parents? Thus, you can buy stocks, mutual funds, ETF’s etc. and gift them to your child and any capital gains will be taxed in your child’s hands (any capital losses will also remain with the child). Any dividends or interest income will be attributed back to you.
Many older parents concerned about probate taxes transfer assets into joint accounts with their children. Technically under the Income Tax Act, this is a disposition of the asset and could create income tax if there is an unrealized capital gain on the asset. In the case of your home, you could impair part of the principal residence exemption if your child(ren) also have a homes.
Many people are not aware that your safety deposit box fee is a deductible expense.
If you have capital losses you do not expect to ever utilize, consider purchasing a flow through tax shelter. The immediate tax deductions you can claim on your tax return will reduce the cost base of the flow through fund and will create a capital gain upon disposition that can be used against your capital loss carryforwards.
If you are required to drive for work and your employer does not reimburse your business related auto expenses or provide you with a reasonable allowance based on the CRA’s prescribed kilometre allowance rate, ask your employer if they will provide you Form T2200 which will allow you to write of your auto expenses for travel to clients.
Did you know that if you donate public securities that have an accrued capital gain to a charity, you do not have to pay the income tax on the capital gain? Thus, by donating public securities as opposed to cash you can effectively increase your charitable donations to your favourite charity by the tax savings on your capital gain.
If you are a US citizen or green card holder you have US tax filing obligations and should seek professional advice. If you do not file your return, your US passport may not be renewed or you could have future issues with your green card.
Did you know that if you transfer a stock, mutual fund, ETF etc. with a capital loss to your RRSP, you cannot claim the capital loss on your personal tax return? On the flip side, if you transfer securities with inherent gains, you will trigger a deemed capital gain. Thus, care should be taken when transferring securities into your RRSP.
If you have received a retiring allowance you can transfer tax free the sum of $2,000 a year for each year employed prior to 1996, plus another $1,500 a year for service prior to 1989 (if you did not have employer vested RPP or DPSP contributions) to your RRSP.
If you own your own corporation that you believe can be sold in the future, you must start planning in many cases two years in advance to take advantage of the $750,000 capital gains exemption for qualifying small business corporations.
Professional advice should be obtained to ensure any of these tips are applicable to your own personal situation.