Blurb: CCRA only tracks tax deductions that people make. We don't know which ones they missed. It's also impossible to determine which tax reduction strategies are most overlooked. But we've made a few guesses.

Ten deductions and tax reduction strategies that people are most likely to miss

By Peter Diekmeyer o

With our hefty tax code it's almost impossible to keep track of all the deductions that are available to Canadian taxpayers. So it's not surprising that many people miss out and end up paying too much tax. According to one expert, even those who hire professionals to complete their returns aren't immune.

"So much is riding on the information you provide," says Evelyn Jacks, president of Knowledge Bureau Inc. and author of numerous books about tax return preparation. "To get the best results, you have to stay informed. If you don't know what information to give, you won't get all the deductions."

With Jacks' help, we've prepared a purely subjective list of easy-to-overlook tax deductions and reduction strategies to help you complete this year's return and to prepare for next year's.

(1) Safety Deposit Box. Safety deposit boxes are considered part of the carrying charges of holding securities and are deductible from the revenues earned on those securities. According to Jacks, this deduction, though relatively small, can add up, when it's left out over the course of several years.

CCRA allows you to amend prior years' tax returns. If you have overlooked certain deductions in the past but have kept receipts, it may pay you to do so.

(2) RRSP carry-forward. Although the vast majority of people take the deduction for their RRSP contribution as soon as they can, it may pay to wait. CCRA allows you to carry forward your RRSP deduction. If you think you will be in a higher tax bracket in coming years, you might consider taking the deduction later.

(3) GST refund on union dues. Although most people know that union dues are tax deductible, the GST paid on those dues qualifies as a direct tax credit, which means that you should get all of it back.

(4) Moving expenses. You can deduct moving expenses if you are transferred or if you move to take a new job. But according to Jacks, you should still hang on to your receipts even if you don't find a job right away. Those deductions will still be valid when you begin to generate employment or self-employment income.

(5) Borrow to invest, not to buy a home. A huge portion of typical household debt is comprised of mortgages. But many families that owe money on their homes also own investments or businesses. If they do, they are missing out on a big potential tax break. That's because mortgage interest payments are not tax deductible here in Canada, as they are in the U.S.

A far better strategy would be to borrow money against your investments instead of your house. Then your interest payments will be deductible against revenue that you earn from those investments.

(6) Carefully track your business expenses. Although most small-and-medium-sized businesses have good internal controls in place to track their spending and expenses, most self-employed individuals do not. Self-employed individuals should keep all their work-related receipts.

Seemingly minor expenses such as parking fees, meal expenses, (when the object of your meeting is to discuss business), or office supplies, add up to big dollars when accumulated over the course of the year.

(7) Split income with your spouse. In many couples one spouse earns more than the other and is consequently taxed at a higher marginal rate. In these cases it pays to transfer income to the lower wage owner whenever feasible. There are numerous strategies for doing so, but the rules are complex. Your accountant should be able to help.

(8) Consider contributing to a spousal RRSP. Spousal RRSPs are an excellent way of splitting retirement income. In fact you can contribute any part of your regular allowable RRSP contribution to your spouse's plan, even if they have already made a contribution that year.

(9) Balance capital gains and losses. When you sell an investment that has increased in value, whether it be a stock or bond, you will likely have to pay tax on the accumulated capital gain.

Take this opportunity to sell any money losing investments that you may have, and net out the capital gain against the capital loss that you are taking. You may be able to avoid some, or possibly all of the tax due.

(10) Ask questions and keep up-to-date. It is unrealistic to ask most Canadians to become tax experts, but that does not mean that you should play the helpless puppy. If you don't understand something about you taxes, get the answer. Keep up-to-date with the latest tax law changes and find out if they affect you. There could be big dollars at stake.


For more information:
Spousal RRSPs:
Capital gains:

-- Posted April 15th, 2004

Peter Diekmeyer is the Montreal Gazette's management columnist. He can be reached at:


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