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Preparation is Key to Minimizing Income Taxes

We are at that time of year again when everyone starts thinking of preparing their taxes for 2004. Tax planning is arranging your income tax affairs in order to legally minimize your income tax burden. Here are some helpful reminders to assist you in keeping more of your earnings in your pockets rather than in the pockets of the Canada Revenue Agency.

• The deadline for filing personal income tax returns is April 30. If you have a balance owing and fail to file you will be charged a late filing penalty, so you should file your return by the due date even if you are unable to pay the balance owing.
• June 15 is the deadline to file personal income tax returns for individuals with self employment income. However, interest will be charged on any taxes owing as of April 30.
• The deadline for making payments to a Registered Retirement Savings Plan is March 1, 2005 to be deductible against your 2004 income. Make RRSP payments now for next year to increase the tax savings on investment income.
• All income from employment is generally considered taxable including benefits such as parking, payment of group health or insurance premiums, memberships and other gifts. As taxable benefits, you may have additional taxes owing when you file your return that you did not expect. Ask your tax advisor how you can reduce the tax on these benefits.
• Disability insurance receipts will be free of tax only if the employee has paid the insurance premiums personally, or if the premiums were considered a taxable benefit to the employee. Ask your employer to include the benefit on your T4 to ensure payments will not be taxable if ever you claim disability.
• Single parents can claim an equivalent-to-spouse deduction for their children to significantly increase their tax credits.
• If separated or divorced parents have joint custody of a child, only one of them may claim the equivalent to married credit. If they cannot agree on who will claim the exemption, neither may claim it.
• The Home Buyers’ Plan allows first time home buyers to withdraw up to $20,000 from their RRSP’s free of Income tax to assist in the purchase of a home and to repay the amount over 15 years. Utilize this method of borrowing to reduce interest on mortgages which is not deductible for tax purposes. Note however that you will be required to make repayments each year, otherwise, the amount of the repayment will be deemed income each year.
• The Lifelong Learning Plan allows you to withdraw amounts from your RRSP’s to pay for your own education or your spouse’s or common-law partner’s education. This withdrawal can be free of income tax provided you repay the amount over 10 years. Note however that you will be required to make repayments each year, otherwise, the amount of the repayment will be deemed income each year.