As the end of 2015 quickly approaches, Hutcheson & Co. LLP is always here to advise you on the best ways to optimize your overall income taxes for 2015.
In the world of tax it is always better to be proactive rather than reactive. With this in mind, taxpayers should consider tax planning as part of their overall financial plan and address it on an ongoing basis, not just during tax time. This approach helps ensure that every taxpayer’s unique situation is tailored to minimize their tax liability as much as possible.
This proactive approach to tax planning is especially true for any major transactions. Major transactions should be reviewed in advance by a qualified professional to ensure that all tax considerations are taken into account. This approach helps avoid surprises from the CRA or IRS.
With that said, many taxpayers haven’t developed a tax plan or actively managed their tax situation until they start receiving their tax slips in the mail (T4’s, T5’s, etc.). If this sounds familiar, don’t worry because below we have listed a number of common steps and ideas individuals can use to turn their tax situation from a reactive one into a proactive one and potentially reduce their 2015 taxes.
Not all of the items listed will be appropriate for each taxpayer’s situation, so it is important to contact one of our qualified professionals to determine which ones will work best for you.
1) Timing of Income
Defer the receipt of certain employment income (ex. bonus) if your marginal tax rate is going to be higher in 2015 than in 2016, or accelerate receipts if your marginal tax rate is going to be lower in 2015 than in 2016.
This is especially important for 2015, as the new federal government is planning on increasing tax rates for individuals earning more than $200,000.
2) Moving Expenses
If you moved to a new home for work or to establish a new business your moving expenses may be deductible. Make sure to keep all relevant receipts because the CRA loves to review moving expenses.
3) Unused and Unclaimed Tax Credits
Review your prior year return to see if you have any unused and unclaimed tax credits and/or deductions that can be used in the current year. If you haven’t done so yet, you can sign up for a CRA online account here. Having a CRA online account will allow you to view and obtain important tax information all year round.
4) Registered Retirement Savings Plans (RRSPs)
Reduce you taxable income and your overall taxes payable by taking advantage of RRSP contributions. The maximum RRSP deduction limit for 2015 is $24,930 and the 2015 tax deadline for contributing to your RRSP is February 29, 2016.
5) Tax Free Savings Account (TFSA)
If you are 18 or older and a Canadian resident, maximize your contributions to your TFSA. Contributions to your TFSA are not tax deductible, but income earned and withdrawals from it are tax free. For 2015, the TFSA contribution limit was increased to $10,000. The taxation of TFSAs differ for US Citizens living in Canada, so please contact your tax professional for clarifications of these rules.
6) Deductible Expenses
Are you maximizing the deductions available to you on schedule 4 of your Canadian tax return? You can potentially claim the following expenses and reduce your taxable income and overall taxes payable:
- Investment advisory fees charged on your non-registered investment accounts;
- Under certain circumstances you can claim the fees paid to prepare your income tax return;
- Most interest paid on money borrowed for investment purposes;
- Legal fees paid relating to support payments that your current or former spouse or common-law partner, or the natural parent of your child, will have to pay you.
7) Charitable Donations
Donations made to eligible charities can be claimed as non-refundable tax credits on your return.
8) Home Office
If you work out of your home, you may be able to deduct certain expenses related to your home office.
9) Company Car
Keep an automobile logbook to support motor vehicle expenses and business and personal KMs driven in case the CRA comes asking. Also, minimize your personal usage to reduce your operating cost benefit and standby charge.
10) Accrued Capital Losses and/or Gains
Consider selling securities with accrued capital losses to offset any capital gains realized in the current year or previous three years.
11) Stock Exchange Cut-Off
Consult with your investment adviser to determine the last day in which the sale of a security will be considered a 2015 transaction for tax purposes.
12) Form T1135
Check to see if you are required to file Form T1135. If so, gather the information early to avoid preparing it just before its due. Don’t forget that this form is due along with your tax return, so to avoid penalties make sure it is filed on time.
Some taxpayers may also be relieved to see that certain taxpayers may qualify for a simplified reporting method.
Married, Common Law and Parents
13) Income Splitting
If you have income that is eligible for splitting and a spouse is in a lower tax bracket consider an income-splitting plan. This may be the last year that you can take advantage of this tax savings opportunity.
14) Registered Education Savings Plan (RESP)
If you have a child or grandchildren consider setting up an RESP. Maximize your annual contributions to receive the maximum lifetime Canada education savings grant of $7,200. If you reside in B.C., ensure that the RESP receives the provinces one-time grant of $1,200 if the beneficiary is born after 2006.
15) Child Care Expenses
Pay all child care expenses for 2015 by December 31, 2015 and keep the receipts. Eligible child care expenses can be claimed on your tax return.
16) Children’s Fitness and Arts Credits
If your child is enrolled in eligible fitness and arts programs and activities you may be eligible to claim the federal and provincial fitness and arts tax credits.
17) Tuition and Textbook Tax Credits
If you attended post-secondary school you may be eligible for the federal and provincial tax credits. If you have claimed them in the past, don’t forget to check your prior year tax return carry forward summary to ensure that any unused amounts are carried forward into 2015.
If you are unable to use your education, tuition or textbook tax credits consider transferring them to your spouse, parent or grandparent (subject to limitations).
18) Student Loan Interest
Interest paid on student can be claimed on your tax return.
19) Moving expenses
If you moved to attend post-secondary school, the moving expenses may be deductible.
20) Old Age Security (OAS)
If you want to avoid the OAS claw back, ensure that your net income is below the threshold. Otherwise you may unexpectedly owe some money to the taxman. If your OAS payments are being clawed back, consider ways to reduce or defer your income, so you can continue to receive this pension.
21) Canada Pension Plan (CPP)
Consider splitting CPP payments with your spouse by requesting to share the payments. If you haven’t started to receive CPP payments determine the best time to start receiving payments. If you delay payments until you are 65, the payments are increased.
22) Registered Retirement Income Plan (RRSP and RRIF)
If you turned 71 in 2014, you are required to wind up your RRSP by the end of the year.
If you turn 71 during the year you can contribute to your RRSP until December 31, 2015.
If you have unused contribution room and your spouse is under 71, consider contributing to your spouse’s RRSP.
Continue to defer taxes on your RRSP by transferring it into a Registered Retirement Income Fund (RRIF) or a life income fund.
23) Pension Income
If you have pension income (ex. from a company pension, RPP, RRIF or RRSP, even most foreign pension will qualify) consider allocating up to half of this income to your spouse or common-law partner to reduce your families overall taxes.
The above list is not exhausted and will not be applicable to all individuals, so please ensure that proper advice is sought. The professionals at Hutcheson & Co. LLP are always available for a detailed discussion on how you can potentially benefit from some year-end tax planning.
Contact us today to discuss your particular situation.