Gord Schakelaar EPC

Branch Manager, Senior Financial Planning Advisor

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Take action now to pay less tax next year

December 25, 2011 • Tax Planning

With income-tax filing just around the corner, we’re keenly aware that taxation takes the biggest bite from what we make. But you can lessen its effects by implementing tax-saving strategies now and throughout the year. Here are five tax strategies that are often overlooked.

1. Help the lower-income spouse to invest

Many couples choose to split their expenses 50/50 and invest anything that’s left over. Usually, that means the higher-income spouse is the one doing the investing.

Instead, switch it around. Have the higher-income spouse pay all the bills – even the other spouse’s income tax. That way, the lower-income spouse can use his or her earnings to make non-registered investments, and any investment income will be taxed at the lower-income spouse’s marginal rate.

2. Spread the wealth

You can give money to your adult children to invest without attribution back to you. If your child is in a lower tax bracket than you, this will result in a lower family tax bill.

Furthermore, if you invest in the name of a minor child, there is no attribution on any capital gains generated. If the investment generates income or dividends, the investment income will be attributed to you until the year the child turns 18.

3. Tax-loss selling

If you have investments that are in a loss position, selling them will realize a capital loss that can be used to offset any capital gains you realized in 2011. Any excess capital losses can be used to reduce capital gains realized in the three preceding years or carried forward indefinitely to a future year. Note, however, that this strategy should be driven primarily by investment reasons and no taxation.

4. Use a spousal RRSP

Several years ago, the federal government introduced pension-income-splitting rules that allow you to split up to half of your eligible pension income with your spouse. However, there can still be benefits to contributing to a spousal RRSP.

For example, the pension income-splitting rules generally don’t allow splitting RRIF payments before age 65. If you retire before age 65, you can use a spousal RRSP to split income.

In addition, your spouse can make withdrawals from the spousal RRSP at any age and pay tax at his or her lower rate provided you have not contributed to a spousal RRSP in the year of the withdrawal or the two preceding calendar years.

5. Keep all medical receipts

The medical-expense tax credit applies to medical expenses that exceed 3% of your net income or $2,052 (whichever is less). Either spouse can claim the entire family’s expenses. Claiming them on the return of the lower-income spouse may allow a higher claim. Eligible expenses include the cost of private health care plans and medical coverage for foreign travel; eyeglasses, contact lenses and laser eye surgery; orthodontics, dentures and other dental work; and attendant care expenses and medical practitioners’ fees. Expenses can be claimed for any 12-month period that ends in the calendar year of the tax return.

Tax planning is a complex area. To ensure that these or any other strategies are properly implemented, we recommend that you consult with your personal tax advisor.

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