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May 2012

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2012 Tax Tips

By Andrew Lau

Finding deals isn't the only way to save money! With some research and preparation, you can save money and grief when you're filing taxes. To help out, we've got some helpful tips and reminders here courtesy of Intuit TurboTax.

Optimize your pension income by splitting it with your partner

As of 2007, Canadian pensioners became able to split their pension income - whether from a corporate/other pension plan or certain annuities from an RRIF or RRSP - with their resident spouses or common law partners. If you have eligible pension income, you can use this tax opportunity to split up to one half of your pension with your partner, which may mean significant tax savings for you both.deadline.

Realize capital losses in 2011

Did you know that capital losses can be carried back 3 years to recover tax paid on capital gains? If you had no capital gains in 2011 but you did have losses, you could use your capital loss to offset a capital gain in any of the 3 previous years (i.e., 2008, 2009 or 2010 taxes).

File a return - no matter what

Even if you are certain that you have no balance owing or refund due in a given year, file a tax return for that year. Why? Because filing:

·         Reduces the ability of the CRA to subsequently make arbitrary adjustments to your income and taxes owing for that tax year

·         Determines your eligibility for government programs, like the Canada Child Tax Benefit (CCTB), GST/HST credit or any new tax rebates that may be announced

·         Reports earned income, which increases your future RRSP contribution room - and we all know the value of RRSPs as tax reduction tools

Claim your charitable donations wisely

Did you know that the rate at which you're able to claim your charitable donations nearly doubles for amounts over $200? For that reason, you should not claim less than $200 in charitable donations in any year.

Instead, if you want to optimize your tax situation, carry forward charitable donations (for a maximum of 5 years) and claim them all in a year where your income is higher. You can even combine your donations together with your spouse/common-law partner and claim them all on the return of the higher-income spouse, maximizing the credit.

Use an RESP for long-term planning, not tax deductions

Contributions to a Registered Education Savings Plan (RESP) are not tax deductible. However, any earnings on that investment are sheltered from taxation and not subject to tax until withdrawn when the recipient begins post-secondary education.

Limits for contributing to RESPs:

·         There is no annual limit for RESP contributions (prior to 2007, the annual limit was $4000)

·         The lifetime RESP contribution limit is $50,000

Claim those medical expenses

Most people know they can claim payments to a doctor, dentist, nurse, hospital and prescription medications and medical devices. But did you know you can claim:

·         Laser eye surgery

·         Batteries for a hearing aid

·         Incremental costs of special foods for those with Celiac disease

·         Certain amounts for attendant care/care in an establishment for a spouse or dependant

·         Certain expenses for modifications to your home to accommodate a person with a disability

Did you know...?

·         To claim medical expenses, they must exceed 3% of your net income

·         To maximize your family's claim, you should claim all medical expenses for yourself, your spouse or common-law partner and your dependants (under 18) on one tax return

·         It's usually better for the spouse with the lower income to claim medical expenses - but, if the lower-income spouse already has enough tax credits/deductions, claim them on the higher-income spouse's return or carry them forward

·         If you have to travel more than 40km to get medical treatment not available locally, you can claim your travel costs as medical expenses - and more than 80km of travel lets you claim accommodation costs, too

Know who should make the RRSP contributions

If a couple has limited financial means, the spouse/partner with the higher income should consider making the RRSP contributions, as he or she will benefit the most from the allowable deduction. This deduction is calculated according to the taxpayer's tax rate: the higher the tax rate, the more beneficial the deduction.

Thinking of Contributing to Your Spouse's RRSP? Contributing to your spouse or common-law partner's RRSP can be a smart tax decision at any age - but it's particularly beneficial after one spouse reaches/exceeds the age of 69. If you are over 69 and have RRSP contribution room, and if your spouse is under 69, you may use your RRSP contribution room by contributing to your spouse's RRSP. The result? You reduce your current income and increase your spouse's income on retirement.

If you contribute to your spouse or common-law partner's RRSP, consider who will report income on withdrawal:

·         If your spouse withdraws funds within 3 years, you (not your spouse) will report the income