If you’re an average Canadian, you’re breathing a sigh of relief now that you’ve filed your tax return. Now that it’s behind us all for another year, here are a few ideas that you might discuss with your tax advisor to get a leg up on next year’s tax return.
Capital gains planning
If you sell a business or non-primary property, you likely experience a capital gain or a loss. If you have a capital loss that exceeds current year capital gains, you may be able to carry that loss back three years, or forward indefinitely. When carrying the capital loss back or forward, the amount of loss available is determined by multiplying the Capital Loss x 50 per cent. To carry back a loss, you or your tax advisor simply complete Form T1A within your current year’s personal tax return. Capital losses can only offset capital gains and may not be applied against other sources of income.
Another area to consider is the timing of using your RRSP deductions. If you expect your marginal tax rate to increase in the future, you may want to forego the deduction now and claim it when your marginal rate increases to maximize the tax savings. Foregoing the RRSP deduction doesn’t stop you from making the contribution; you can still contribute, benefit from tax-free growth, and carry the contribution forward to a later year as an unused contribution.
Donations to charity
With regards to charitable contributions, Canada Revenue Agency (CRA) has an administrative policy that allows either spouse to claim the donation, regardless of which spouse is named on the receipt. It is typically most beneficial to claim donation expenses on one spouse’s return to better utilize the top rate, however access to the first-time donor credit should be considered.
Paying tax installments
When you owe tax in a given year, you may have to pay CRA in installments in the following year. If you expect your income to be significantly lower than the prior year you may want to consider having your tax advisor complete an estimate to determine the actual amount of tax owing rather than pay the estimated installments. Provided you pay a sufficient amount to cover the actual tax by Dec. 31 of the taxation year (equal to or exceeding that amount calculated on April 30 of the year following the taxation year), you should not be subject to interest and penalties with respect to installments.
Your old returns are a useful reference
Finally, it’s important to make sure that you get every deduction available and avoid penalties caused by mistakes on your return. To this end, it’s a great habit to review prior tax returns to ensure you have not missed anything and that any significant changes make sense.
Now put the tax files away and enjoy the great spring weather!
This publication is intended for informational purposes only and is not intended to constitute investment, financial, legal or tax advice. It does not take into account your particular situation and is not intended as a recommendation. You should seek advice regarding your particular circumstance from your personal tax and/or legal advisors This publication is based upon information considered to be reliable, but neither Richardson GMP nor its affiliates warrants its completeness or accuracy, and it should not be relied upon as such.
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