Some pointers for you to save on govt taxes.

  • Tax avoidance involves legally structuring your affairs to take advantage of provisions or loopholes in our tax law.
  • Tax evasion is a no-no. It can bring civil and criminal penalties, and can mean up to five years in prison.
  • A voluntary disclosure may be your best option to come clean if you’ve been evading taxes.
  • Your marginal tax rate is generally the most important tax figure for you to know.
  • Simply put, it’s the amount of tax you’ll pay on your last dollar of income.
  • Your marginal tax rate depends on three things: your province of residence, your level of income, and the type of income earned.
  • A deduction reduces your taxable income and offers tax savings equal to your marginal tax rate.
  • A credit reduces your basic federal or provincial tax bill, dollar for dollar, and results in savings on provincial surtaxes where they apply.
  • There are two types of credits: non-refundable and refundable.
  • Educate yourself about what kinds of events can lead to a tax bill.
  • There may be good reasons for involving yourself in some of these taxable events, but wait until a future year to trigger the tax hit if you can.
  • Don’t hope for a refund when you file your return. Aim for a small balance owing instead.
  • Request to have source withholdings reduced when you expect a refund due to certain deductions (file Form T1213 with CCRA).
  • You may have to make quarterly installments when your income is not subject to source withholdings.
  • Consider the installment method that results in the lowest quarterly payments.
  • Think of taxes any time big events happen in life.
  • Visit a tax professional before the events take place, if possible.
  • If you disagree with your Notice of Assessment, call CCRA to straighten things out.
  • If a phone call doesn’t help, consider filing a Notice of Objection within the required time limits.
  • Your last line of attack is to take CCRA to court, starting with the Tax Court of Canada’s informal or general procedure, and potentially ending at the Supreme Court of Canada.
  • If you have faced circumstances beyond your control that led to interest, penalties, or other unfair tax treatment, don’t be afraid to ask for relief under our tax law’s fairness rules.
  • CCRA is not obligated to provide relief, and they will look at your history when making a decision.
  • Your province or territory may also offer similar relief if you ask.
  • Splitting income involves moving income from the hands of one family member, who will be taxed at a higher rate, to the hands of another, who will face tax at a lower rate.
  • The attribution rules prevent many attempts at passing income to other family members.
  • Splitting income most commonly entails investing money in lower-income hands, making deductible payments to lower-income family members, and claiming deductions and credits on the most appropriate tax return.
  • Every trust has at least one settlor, one trustee, and one beneficiary, along with trust property.
  • A trust is commonly used to split income by holding investment portfolios or private company shares.
  • When setting up a trust, be sure to visit a tax pro to ensure that the trust is settled, the trustees are named, and the trust documentation is prepared properly.
  • The “kiddie tax” is legislation introduced in the 1999 federal budget that will cause tax to be paid at the highest rate by minor beneficiaries who receive certain types of income from a private company—even through a trust.
  • There are still opportunities to use these family trusts to split second-generation income.
  • Alter ego trusts are an estate-planning tool that seniors may want to consider.
  • In-trust accounts are a popular method of saving for a child’s education but are often set up improperly. There are two steps involved in setting up an in-trust account properly.
  • Once the money is in the in-trust account, forget about getting it back—it belongs to the child and he or she has a right to it at age of majority for education or otherwise.
  • Both Registered Education Savings Plans (RESP) and in-trust accounts can play a significant role in paying for a child’s education.
  • Every family is entitled, for 1982 and later years, to one principal residence exemption to shelter from tax the profits on the sale of a home.
  • A child who is 18 years or older in the year, or who is married, is entitled to his or her own principal residence exemption.
  • Ownership of a second property can be transferred to multiply the available exemptions, but professional tax advice is going to be important here!
  • You can deduct costs for moving as long as you’re moving to a new work location or to school, and your new home is at least 40 kilometres closer than your old home.
  • Plan your move so that it coincides with a new work or school location and meets the distance test.
  • If you’re moving to a new province, time your move to take advantage of lower tax rates.
  • Remember that you can pay an adult child to help in the move and then deduct this as an expense.
  • Claim childcare expenses where they were incurred to allow you or your spouse to earn income.
  • The deductible amount will be based on the age of your child and whether or not he or she has any infirmities.
  • Maximize the base for your claim by reporting all your kids 16 or under on your tax return, even if you didn’t incur childcare expenses for some of them.
  • You’re entitled to a disability tax credit where you have a severe and prolonged disability that markedly restricts a basic activity of daily living.
  • You may be entitled to claim attendant care costs if you’re disabled and require the care to earn income.
  • Attendant care costs can be claimed as a deduction or as a medical credit. You’ll have to do a calculation to figure out which is best for you and your family.
  • Claim the equivalent-to-married credit if you are separated, divorced, or otherwise single, and you support a relative who lives with you.
  • The credit could save you over $1,500 in tax.
  • Joint custody will generally allow one caregiver to claim the credit, but it may be possible to structure your separation agreement so that both parents can claim a full credit when joint custody over more than one child exists.
  • When dividing up the assets after separation or divorce, avoid taxes on the transfer by splitting RRSP or RRIF assets in accordance with a written separation agreement or a decree, court order, or judgment.
  • Canada Child Tax Benefits are based on the combined incomes of both spouses and, as a result, often quickly disappear.
  • Make an election within 11 months of marriage breakdown to have the benefits based on one income only. This may increase the benefits significantly.

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