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"Experience Saves Time And Money"
20 Canadian Tax Tips
Tips 1 - 10 next 11 - 20 tax tips >>>20 smart tax tips for Canadians. How to trim your family's tax bill -- and put extra cash in your pocket.
By Cheryl Embrett
Tired of handing over almost half of your hard-earned money to the tax collector? We asked financial experts across Canada for timely tips to help you trim your family's tax bill as well as smart strategies that'll add up to more savings next tax season.
1. Make RRSP contributions automatic
Set up an automatic contribution plan throughout the year, advises Teresa Black Hughes, a senior financial planner and investment adviser at Solguard Financial Ltd./Peak Securities Inc. in West Vancouver. Either arrange to have deductions taken directly from your paycheque or have the funds debited from your bank account each month and deposited into an RRSP.
TIP: By contributing $100 each month, you'll boost your retirement nest egg to $138,029 after 35 years (assuming an annual return of six per cent) compared with $131,272 if you invest the same amount in yearly $1,200 lump sums.
2. Borrow money to save money
If you don't have extra cash for an RRSP contribution, you may be better off borrowing the money than not contributing at all, says Tim Wallis, a financial consultant with IPC Investment Planning Council in Waterloo, Ont. The long-term benefits of deferring taxes and earning compound interest outweigh the interest costs of borrowing to make a contribution.
TIP: Hold off on the loan if you have a whopping credit card bill. It makes more sense to pay the credit card off first, says Wallis.
3. Avoid getting a tax refund
While getting back a juicy tax refund may feel good, a large return is actually a sign of poor tax planning, says Wallis. "Think of it as giving the government an interest-free loan." While that money was sitting with the government for 12 months, it could have been earning you interest in an investment. To keep that money in your own pocket, ask your employer for a T1213 Form to reduce the amount of taxes taken off your paycheque each month.
TIP: Put that extra $150 a month on a $200,000 mortgage at six per cent amortized at 25 years and it'll be paid off five years earlier -- a savings of $43,254.
4. Spend less
"Spending less money is the most overlooked way of reducing your tax bill," says Lori Bamber, a financial counsellor in Port Moody, B.C., and author of Financial Serenity: Successful Financial Planning and Investment for Women (Prentice Hall, 1999). "We always think in terms of income tax and forget that we pay GST plus provincial sales tax for most of the products we buy."
TIP: Keep your purchases to a minimum to avoid tax.
5. Invest in your kids
If you have school-age children, consider contributing to a registered education savings plan (RESP). You won't get a tax deduction, but the earnings will grow tax-free for up to 25 years or until the funds are withdrawn by your college-bound scholar.
TIP: Make a contribution of up to $2,000 a year for each child under 19 and Ottawa kicks in free money -- a Canadian education savings grant of 20 per cent of your contribution to a maximum of $400 a year.
6. Reap the benefits of the self-employed
If you own your own business, consider paying your kids or a lower-income-earning spouse a salary or wages and deduct it against your income. Bamber, for example, pays her daughter to file and answer the phones in her home-based business instead of giving her an allowance.
TIP: If you work out of a home office, you can also write off a portion of all eligible home costs, including mortgage interest, property taxes and utilities.
7. Make moving costs count
While moving house and home is never easy, there are some major tax breaks to help ease the pain. If you relocated at least 40 kilometres in 2007 to start a new job or business, you can deduct most of the costs.
TIP: Wallis says a lot of moving deductions get missed because people aren't sure what they're entitled to. For a full listing of moving expenses, go to the Canada Revenue Agency's website at www.cra-arc.gc.ca/tax/individuals and search "moving."
8. Add up all your medical expenses
Many of us assume we don't have enough medical expenses to get a tax credit (the total amount of receipts must exceed $1,844 or three per cent of net income, whichever is less), but they can add up quickly. Look for things that aren't an eligible expense under your group plan and don't forget to include any health-care premiums you're paying at work, advises Cleo Hamel, a senior tax analyst with H&R Block in Calgary.
TIP: Keep in mind that you can claim expenses for any 12-month period ending in the tax year you're filing (June 2007 to May 2008, for example), so pick the period that includes as many expenses as possible to maximize the credit.
9. Claim all your child care
"A lot of parents think if a neighbour is taking care of their child, they can't claim it," says Hamel. "But if you're paying someone and getting a receipt for it, it's a child-care expense." Generally, the lower-income-earning spouse makes the claim, which is either two-thirds of your earned income or the total of the individual maximums for each of your children ($7,000 for each child under seven and $4,000 for children seven to 16), whichever is less.
TIP: Make sure you report all your children 16 and under on your tax return, even if you didn't incur child-care expenses for some of them. The tax collector doesn't attach specific child-care expenses to specific children.
10. Don't overlook the child disability credit
If your child has a severe, long-term physical or mental disability, don't overlook the Child Disability Benefit (CDB), which increased to a maximum of $2,300 a year from $2,044 effective July 2006.
TIP: To apply for the CDB, you must have Form T2201 completed and signed by a qualified medical practitioner. These forms are processed throughout the year, so you don't have to wait until it's time to file your tax return to apply.
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