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Maximize your RRSP contributions
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Amounts that you contribute to your RRSP (or spousal RRSP, if
applicable) are deductible from your income. These include amounts contributed
during the year and during the first fifty-nine (59) days of the following
year. Tax is deferred on all income earned inside of your RRSP until you begin
receiving an RRSP income.
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| Make
spousal RRSP contributions by December 31st |
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If your spouse's retirement income is expected to be lower than
yours, consider contributing funds to your spouse's RRSP rather than your own
plan (you can still claim the deduction on your return). Your spouse may then
be able to withdraw funds in the future and pay less tax than you would pay on
the same amount of income. The timing is important though - for the withdrawal
to be taxed in your spouse's hands. it cannot be withdrawn until the third year
after the calendar year in which you last contributed to any of your spouse's
RRSPs - otherwise it will be taxed in your hands
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| Ensure
that interest expense is tax-deductible |
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In
general, interest is deductible for tax purposes provided it is paid of payable
in the year, there is a legal obligation to pay the interest and the interest
was incurred on funds borrowed to earn business or property income (except
capital gains). Therefore, if you have to borrow money, you should borrow for
business or investment purposes, before you borrow for personal reasons. When
repaying debt, always repay loans on which the interest is non-deductible
before you repay debts on which the interest is deductible.
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| Maximize
charitable donations tax credit |
| Consider
donating listed public securities directly to your favorite registered
charitable organization. This will give you a greater tax benefit than selling
the securities first and then donating the cash proceeds to the charity. |
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Ensure your "charitable
donations" are deductible
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The charitable donations tax credit is
only available for donations made to registered charities, registered
Canadian amateur athletic associations, Canadian municipalities, the federal
government and provincial governments. To obtain the tax credit, you must
include the original official receipt issued by the registered charity or
association, with your tax return. Photocopies of receipts or the filing of
canceled cheques, are not acceptable. These official receipts will
include the registration number of the charitable institution. Ensure that your
contributions are going to a true charitable association and that your
receipt has a charitable registration number printed on it.
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Split income with your spouse
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Most couples will pay less income tax in
total if each partner earns part of the family's investment income, rather than
one partner earning all of it. In addition, the higher income spouse should
assume most or all of the personal household expenses, leaving the lower income
spouse with as much disposable income as possible to be used for investment
purposes. The investment income so earned, would normally be taxable at a lower
rate.
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Do-It-Yourself Job Creation Plan
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| If you have a child over 18 and one or more children under 18, consider
paying the older child for looking after the younger ones. If you're the
lower-income spouse and if the baby-sitting and child care services permit
you to earn income, the payments should be deductible as child-care expenses.
Your adult child will have to provide you with a receipt and report the
income for tax purposes. |
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| Realize losses to offset any gains |
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If you've already realized or plan to
realize a taxable capital gain in this year, consider selling investments with
accrued capital losses before the end of the year to offset against the capital
gains. If you engage in this strategy, make sure that you do not run afoul of
the special tax rules designed to stop the artificial creation of tax losses. |
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Reduce net income to avoid the OAS
clawback |
| If
possible, defer income to a future year or maximize your deductions this year,
to reduce your net income and the clawback of Old Age Security. If you are
considering making the election to include all of your spouse's taxable
Canadian dividends in your income, ensure that you are not subjecting yourself
to the OAS clawback, by increasing your net income. |
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Split CPP benefits with your spouse |
| The Canada Pension Plan Act permits you to assign a portion of
your retirement pension to your spouse. In many cases the assignment of
benefits allows you and your spouse to equalize CPP retirement benefits. |
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Consider a RESP for your children
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If you have a child or grandchild under
18, you may want to consider starting a registered education savings plan. A
RESP can help you build an education fund for your child or grandchild by
allowing you to earn investment income in a tax-deferred environment. Recent
changes to the RESP system, including the introduction of Canada Education
Savings Grants (CESGs), have made these plans more attractive than they were in
the past. Under the CESG program, the government will provide a direct grant to
the RESP of 20% of the first $2,000 of annual contributions made to the RESP in
a year.
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File for your child
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| Filing tax returns for your children can be very beneficial
to them down the road. If your child has taxable income of less than $7,756,
there is no federal tax to pay. However, by filing a return to report your child’s
earned income for RRSP purposes, you will be building up the Registered
Retirement Savings Plan (RRSP) contribution limit that can be used in the
future. In addition, if your child is over the age of 18, they may
be entitled to the goods and services tax/harmonized sales tax (GST/HST)
credit. The only way to receive this benefit is to file a return. |
Click here to request additional Tax Tips.
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