Happy New Year! May 2014 bring you wealth, happiness, prosperity and great health. May it also bring you debt-free (should you need to be) and also allow you to be one step ahead of the taxing authorities.
With the changing of the calendar, many are already working on their new years’ resolutions, but you should also review the list below to see if there are any actions you can do now to reduce your 2013 taxes owing or to increase the amount of refund you will get this year, or in future years. It’s never the wrong time to thing about tax savings – we do it all the time here at Intaxicating, and want to pass along some tips for you.
Here are 14 easy strategies you can still take advantage of which impact your 2013 taxation year;
1. Make your installment payments as required, or if you have fallen behind, catch up with one lump sum payment right away.
The Canada Revenue Agency (CRA) charges interest on missed installment payments, but if you catch up in one fell swoop, then they begin to reduce the amount of interest they charge you. Ssshhh. It’s a secret.
2. Make sure you file on time and pay in full while doing so.
So how does this impact the 2013 taxation year, you might be asking and why is it so high up the list? It is because many Canadians are shocked with the amount of money they owe at year-end and it’s the worst time of the year to discuss ways to reduce taxes with your accountant or tax preparer because they are so unbelievably overwhelmed they cannot spare 2 minutes to talk to you, let alone review your return for possible deductions you failed to mention to them. You are not the accountant! Nor the tax professional. So take time now to speak to someone who knows about what you do for a living and see if there are areas where you may be entitled to a deduction or credit and then go get that supporting documentation. Also use the time to run your year-end situation through a free tax program to see how much you owe and what it will take to reduce that, or make it go away completely.
If, however, you are stuck owing a balance to the CRA or MRQ, make sure to set aside the funds to pay it in full with the filing of your tax return. Heck, you could even send in the money now if you have it, but do not wait until even a day later than the deadline or interest starts accumulating. The CRA charges 10% interest compounding daily, so it can add up rather quickly.
3. Contribute to your Registered Retirement Savings Plan (RRSP).
The deadline to contribute to your RRSP for 2013 is March 3rd, 2014. If you need to know how much you are eligible to contribute to your RRSP. check your 2012 CRA Notice of Assessment. Or, check online using the CRA’s “My Account” service. Your contribution limit for 2013 is going to be 18% of your 2012 earned income (to a maximum of $23,820) less your 2012 pension adjustment, if any, plus any RRSP room carried forward from prior years.
4. Contribute to a Registered Education Savings Plan (RESP).
The Canada Education Savings Grant (CESG) program was initiated by the federal government to assist families saving for their children’s post-secondary education. As an added bonus, the government tops up your annual contribution by 20%, up to a maximum of $500 ($2,500 contributions x 20%) per beneficiary per calendar year, to a lifetime maximum of $7,200.
5. If you turned 71-years-old, you must collapse your RRSP.
If you turned 71-years-old by December 31, 2013, you must collapse your RRSP by the end of the year. At that time, you have 3 choices to make; either pay tax on the fair market value of the plan’s assets, transfer your RRSP into a Registered Retirement Fund Income Fund (RRIF), or purchase an annuity with the proceeds. No tax is paid at the time of the purchase of the annuity or at the time of conversion into a RRIF. You may still be able to contribute to your spouse’s RRSP under certain conditions.
6. Make your Home Buyers’ Plan repayment before it is included in your income for the year.
The Home Buyers’ Plan (HBP) is a program that allows you to withdraw funds from your registered retirement savings plan (RRSP) to buy or build a qualifying home for yourself or for a related person with a disability. You can withdraw up to $25,000 in a calendar year.
Generally, you have to repay all withdrawals to your RRSPs within a period of no more than 15 years. You will have to repay an amount to your RRSPs each year until your HBP balance is zero. If you do not repay the amount to your RRSP, for 2012, it will have to be included in your income for that year. The deadline is
March 3rd, 2014.
7. Pay the interest on low-interest loans related to income-splitting.
If you have entered into an income-splitting arrangement with family members and have loaned funds to either a spouse or a child at the interest rate set (quarterly) by the CRA, make sure that the interest on these loans are paid before January 30, 2014, or the loans will be subject to the attribution rules which taxes the income earned by your spouse or child in your hands.
8. Pay the interest on an employer-loan to avoid it becoming a taxable benefit.
If in 2012, you received a low-interest loan from your employer you will want to ensure that interest is paid on that loan before January 30, 2014 in order to avoid a deemed taxable employment benefit. This benefit will be calculated at the CRA’s prescribed rate for the period that the loan was outstanding (which increased from 1% to 2%, effective October 1, 2013) less any interest actually paid. This is not to be confused with a loan taken out as a result of shares owned.
9. Reduce your business income by paying your family members who work for you.
As a business owner, it is beneficial to pay your family members a wage consistent with a wage you would pay to a complete stranger in order to reducing the amount of income in your business. Also ensure that you are remitting to the CRA the CPP, EI and tax amounts on these payments. You will need to issue them a T4, and file a T4 summary with the CRA by February 28th, 2014.
10. File any T4’s and the T4 summary before the CRA deadline of February 28th, 2014 in order to avoid any penalties and interest.
If you are short on remitting for any employees, take advantage of the January 15th remittance – the last one for 2013 – and also consider the Payment on Filing (POF) option to top up amounts with the filing of the T4 summary. Keep in mind, if you use the POF option to catch up on a considerable amount of funds, the CRA will still charge you maximum penalties.
11. Pay back any personal operating costs on employer-provided cars.
If your employer provides you with a company car, you already know that it is a taxable benefit and it will be included on your T4. Did you know that the actual benefit is made up of two parts; The first part is a standby charge based on a percentage of the original cost or the monthly lease payments for the car, and the second part applies if your employer pays the automobile’s operating expenses. In 2013, this benefit is equal to 27¢ per personal kilometre driven. The standby charge and the operating benefit are reduced by the amounts you pay to your employer. For a standby charge reduction, your payment must have been made during 2013. For an operating benefit reduction, your payment must be made by February 14, 2014.
12. Has the tax burden from previous years got you considering bankruptcy?
You are not alone! In Canada 55% of bankruptcies are CRA related. Before you speak with a trustee, speak with your trusted tax professionals at Intaxicating Tax Services, who can tell you whether or not the debt is fully collectible, and if there are other options available to you which will not ruin your credit for 7 years. Even if the CRA is breathing down your neck, they are not allowed to tell you to file for bankruptcy and they like to think they understand when someone is insolvent, but we have the expertise, and the network to help you out of debt or, if you decide to proceed with a bankruptcy, or proposal, get you the best deal possible.
13. Google your tax problem!
You might have heard that it can be dangerous to Google that you have a tax problem, however nothing can be further from the truth. The CRA has all their tax information online and there are a plethora of tax-related resources available to help you determine if you should go it alone or if additional help is needed. Make sure when you are doing your research that the information you are reading matches with the CRA website, does not sound too good to be true or is written in such a way to scare you into thinking you need to pay for a service you may not. Most reputable firms will offer a free consultation, or a nominal fee for an hour meeting followed up with a written report to help you decide what to do. Don’t rush into something until you have all the facts.
14. Don’t be afraid to ask for help!
Speak with your accountant / tax professional about any deductions that you may be entitled to such as the public transit tax credit or for working at home. If your accountant has not already asked you about what you do in detail then it’s up to you to determine if you need to brush up on the tax act yourself, or find a new tax team to help you pay the least amount of tax possible, like the tax professionals at Intaxicating Tax Services. If, on the other hand, you are having issues with collections, then we are the only place to go based on our hands-on experience on both sides of the negotiating table.