Most Canadians have now filed their taxes which means they will not think about them at all until next spring comes around. But the time to start tax planning is now.
Waiting until next year’s tax filing deadline at the end of April, or even until the RRSP deadline at the end of February, could be too late if you’re trying to take advantage of every opportunity to reduce your tax bill.
But with a little bit of advanced planning during the year, you’ll have a better chance of lowering your taxes.
If you receive a regular paycheque, it’s easy to think your income and the taxes you pay are on autopilot. Taxes and CPP/QPP contributions get deducted, contributions get made to a company benefit plan, and it can seem like you don’t have a lot of control over the numbers.
The truth is, you have more control than you think, and there are ways to lower your tax bill and put more money to work.
Planning doesn’t need to be complicated. You only need to locate a few documents and set aside a little time to chat with your CFP professional. Key documents include:
1. Your notice of assessment sent from the Canada Revenue Agency (and available online if you have a CRA My Account)
2. Your latest pay stub and your best estimate for any income from upcoming bonuses or commissions
3. Recent statements for non-registered investments
This information will help your financial planner determine if any action needs to be taken before the end of the calendar year to maximize tax savings for you. Depending on your situation, they may even be able to help you reduce the taxes deducted by your employer so that you benefit from those tax savings during the year rather than waiting until next spring.
Planning for the “Rs”
These are your registered accounts. These accounts are either tax-deferred or tax-free. They include:
• Registered Retirement Savings Plan (RRSP)
• Tax-Free Saving Account (TFSA)
• Registered Education Savings Plan (RESP)
• Registered Disability Savings Plan (RDSP)
When planning to optimize your contributions to registered accounts, consider the order of events. For example, a contribution to your RRSP will generate tax savings. You could then contribute that amount to your RESP to benefit from grants from the federal and some provincial governments.
Consider capital gains and losses
Sometimes, it makes sense to sell investments that have gone down in value, because you can use the loss to lower your taxable income, if you have taxable capital gains in the current year or the last three years. You should seek the advice of a qualified tax specialist before taking this step - your financial planner can guide you through the steps and potential tax advantages.
Maximize your bonus
If a bonus is paid directly to you, you will probably have taxes withheld at source. However, if your employer allows it, some or all of the taxes on your bonus may not have to be withheld if your bonus is paid directly to your RRSP.
Setup a prescribed rate loan
As discussed in more detail in one of my columns a few weeks ago, a prescribed rate loan to a family member with lower income can provide significant tax savings for some people.
Year-end and the RRSP contribution deadline are not the only times when you should be planning the best way to minimize taxes. A little extra attention throughout the year can reap big rewards.
Work with your professional planner to make proactive changes to your living financial plan so you can take full advantage of tax-efficient strategies that will enhance your overall financial well-being.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.