Maximize your RRSP contributions
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.
Make spousal RRSP contributions
by December 31st
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 it cannot be withdrawn until the third year after the calendar year in which you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
Ensure that interest expense is
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
Maximize charitable donations tax
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.
Ensure your "charitable donations"
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. There
are many organizations soliciting funds from the public, some of them purportedly to send children to certain events,
or supposedly, on behalf of local police or fire organizations. Ensure that your contributions are going to a true charitable association and that your receipt has a charitable registration number printed
Split income with your spouse
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.
Realize losses to offset any gains
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.
Reduce net income to avoid the
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.
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.
Consider a RESP for your children
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.
Tax Instalments and
If you are required to make quarterly
tax instalments, you should review your expected tax liability before remitting your final instalment (which is
due December 15th). This will be especially important where your mix of salary/dividends has changed from year
to year, or where you have had unusual income inclusions last year, or expect increased deductions in the current
You are required to make quarterly instalments
if the difference between your total tax payable (federal and provincial) and the amount withheld at source is
greater than $2,000 in 2001 and in either of the two prior years.
The amount of your instalment payment can be
based on either your actual tax for the preceding year or an estimate of your tax for the current year. One other
option is to pay the amount reported on the notice from CCRA. However, this option may not be the most advantageous
from a cash flow perspective, especially if your tax liability for the current year has decreased and/or the amount
of tax withheld at source has increased. CCRA charges interest on late or deficient instalment payments. It is
important to ensure that adequate instalments are made on the required dates.
If you discover during the year that you should
have been making higher instalments, it is possible to catch up because CCRA will calculate credit interest on
overpayments and apply that against interest charges on deficiencies.
The information provided is of a general
nature and is not intended to construe an opinion. As each taxpayer's
situation is unique, no one should act upon any of the above without first obtaining professional advice, from
a Chartered Accountant, concerning the particular facts of their situation.