Title: Tax changes that you should know about
Sub-title: Each year the Canada Revenue Agency makes a slew of rule changes. Use the opportunity to revise your entire tax strategy.
The fast approaching income tax and registered retirement savings plan (RRSP) contribution deadlines have Canadians everywhere scrambling to gather their receipts, forms and other paperwork. The braver and more patient will complete those returns themselves. Others, who are less able or less willing to keep up with tax code complexities, will dump them on their accountants.
As it previous years the Canada Revenue Agency has once again listed many of the major tax code and regulation changes on its Web-site (http://www.cra-arc.gc.ca/E/pub/tg/5000-g/5000-g-01-09e.html#P65_887). This year, key changes include increases in the basic personal amount, the spouse amount, as well as the eligible-dependent and age amounts, as well as a slew of housing sector-related measures.
Revise your tax strategy regularly
According to one expert, all tax return filers, even those who farm out their preparation services, need to take an interest in the major changes made to the tax code each year. “Your tax advisor is only as good as the information that you provide him,” said Sonny Barnard, who overseas taxation services at the Montreal offices of Bessner Galley Kreisman. “The more that you are aware of new taxation issues that may affect you, the better the questions that you will be able to ask, and thus the more guidance you will get.”
According to Barnard, effective tax planning includes assessing the impact of these changes as they occur, but also regularly reevaluating your own position. For example: “Last year the government introduced Tax Free Savings Accounts, which entitle savers to contribute $5,000 a year into interest free accounts,” said Barnard. “However those who were unable to contribute last year, can carry that amount forward and contribute this year.”
That said, according to Barnard, TFSAs are not necessarily for everyone. “Many people prefer to invest either in RRSPs, or to use their savings to pay down their mortgages,” says Barnard. “Both strategies carry significant advantages. An RRSP contribution generally entitles the taxpayer to significant refund. But because mortgage payments are made in “after tax dollars,” paying down housing debt is often the safest, surest and most profitable investment that most people will ever make.”
Refunds aren’t always a good thing
According to Evelyn Jacks, a tax expert and author of numerous books on the subject including Essential Tax Facts 2010 edition, Make sure it’s deductible and Master your taxes, tax changes related to Canada’s housing sector are among those the most likely to get attention this year. These include an increase from $20,000 to $25,000 in the maximum amount that first time home buyers may withdraw from their RRSPs and a new “home buyers amount,” that entitles taxpayers to a $750 tax credit when purchasing a new qualifying property. On the downside, the 15 percent home renovation credit introduced last year and which applied to purchases of between $1,000 and $10,000, expired earlier this month.
Jacks argues that publication of new government tax changes provides taxpayers an opportunity not only to revise their tax strategies, but also their payment methods. The veteran taxation author points out that the average tax refund paid out by the Canada Revenue Agency last year was $1,400, which she regards as an indication that many companies are deducting far too large contributions from employee pay packages.
“It basically means that the government is taking away your money from you and using it for its own purposes, for almost a year – interest free,” says Jacks. “Some people don’t mind this, because they regard it as a form of forced savings on them. However that is like saying that the government is more responsible than you are.”
According to Jacks, those excess remittances by employers to the federal government are often caused by incorrectly-completed tax deduction paperwork (your TD-1 and T-1213 forms). “If you are making RRSP contributions, paying medical expenses or making significant charitable donations you should notify your employer immediately,” says Jacks. “You will almost certainly be eligible to have the deductions made to your paycheck reduced.”
“Effective tax planning isn’t just a series of steps,” adds Jacks. “It is a long term process that consists of ensuring that your first dollars come to you, that you hold on to them as long as possible, and that you can effectively transfer them to you heirs. That may take a bit of work. But it’s worth it.”
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