I know, I know.
You have not yet filed your 2013 personal income tax returns here in Canada and already some former Canada Revenue Agency Collections Expert (me) is pushing you to think about your 2014 personal income tax filing.
Well, of course I am. We are 3-months into 2014 and any time is the right time to help taxpayers save on taxes for the current — and future — years.
Here are 6 quick ideas to get you thinking about ways to save taxes in 2014 starting today!
1. Reduce tax deductions at source.
As I have mentioned before, a tax refund is a sign of poor tax planning equivalent to loaning the Canada Revenue Agency (CRA) your hard-earned income for a year only to get it back after filing your tax return, interest-free. An easy strategy to minimize or eliminate taxes owing for 2014, is to complete CRA Form T1213, “Request to Reduce Tax Deductions at Source.”
The purpose of this form is to ask the CRA for reduced tax deductions at source for any deductions or non-refundable tax credits that are not part of the Form TD1, Personal Tax Credits Return. In order to complete this form, all income tax returns that are due have to be filed and amounts paid in full before sending this to the CRA.
In addition the request to reduce deductions through Form T1213 must be made each year, and the CRA will respond within 6-weeks time to advise if the request has been approved or denied. Once approved, the CRA letter should be handed over to the payroll department who will then reduce the amount of taxes withheld at source. Deductions and credits which will be claimed upon the filing of the 2014 personal income tax return such as RRSP contributions (other than those made through payroll deduction), support payments or child-care expenses should be accounted for.
By planning ahead, you get your “refund” throughout 2014 and they can use that saving to set up and contribute to a RRSP, RESP, TFSA or other long-term investment vehicles aimed at deferring tax.
2. File on time.
Everything. Always. This way you do not start the tax year paying back debt, or penalty and interest, for missing a filing deadline by a day or more. The CRA offers an online installment reminder service whereby you will get an email notifying you that your installments are due. Use that, set key dates in your calendar or have your accountant notify you in advance. Just do not miss filing deadlines.
3. Donate funds “in-kind”
Consider donating appreciated publicly-traded shares, mutual funds or segregated funds “in-kind” to a registered charity or foundation throughout the year, and not just at year end in order to claim a deduction. The tax receipt received for these types of donations are equal to the fair market value of the shares or funds donated, and the payment of taxes on any accrued capital gains are avoided.
4. Clear up all balances owing (with the CRA and elsewhere)
Along the lines of point number 2, if at all possible, clear up any amounts owing to the CRA as quickly as possible. You save money by not paying interest which the CRA compounds daily at a rate around 10%, plus the reduction in stress is well worth it. Also take into consideration that a debt with the CRA can harm your credit or business relationships, whereas a consolidation loan paying back a bank improves your credit. Same outcome, but different treatment.
5. Consider Income – splitting loans.
As of January 1st, 2014, the prescribed rate has dropped back down to 1% 1. In a typical income-splitting loan strategy, a high-income spouse (or partner) loans funds at the prescribed rate to his or her lower-income spouse. The investment returns minus the tax-deductible interest on the spousal loan can then be taxed in the lower spouse’s hands. The advantage of advancing a loan when the prescribed rate is low is that under the tax rules, clients need only use the prescribed rate in effect at the time the loan was originally extended to avoid the income being attributed back to the higher income spouse so if the loan is establish during the first quarter of 2014, when the prescribed rate is 1%, they can then use that rate for the duration of the loan, which could be unlimited if there is no fixed term and it’s simply a demand loan.
6. Find a great accountant and investment planner who care about you and your family.
One of the most common questions I get asked is how to know if your accountant or investment adviser are meeting your needs, and the way I answer that is to ask you when the last time you spoke to their professionals about you. When was the last conversation you had with them about you, your family, your work, dreams, goals, aspirations, and about the kids, any side business you have or want, or even about how you get to work or who pays the mortgage of private school tuition for the kids.
If you have never had this conversation then you must be 100% on top of all new legislative changes to be sure you are taking advantage of all deductions and tax credits available and when you hand over your file at tax time, be comfortable knowing that what you are getting is a tax return. No more, no less.
A good accountant and a good investment adviser take the time to know you and advise you, send you suggestions, recommendations and tips on ways to save money, invest, reduce taxes, and can help guide your financial future. You should want to call your financial professionals when you are looking to make a decision that could impact your finances and don’t be alarmed if they don’t know the answer right away. A well researched answer is much more valuable than an off the cuff opinion.
These 6 things should help you get moving in the right direction in 2014 and as always, should you have any questions, concerns or comments, all you need to do is send me an email to firstname.lastname@example.org or comment on a blog post here, or at http://www.intaxicating.ca and an answer will be coming your way.
If you wish to inquire about our services. you may do so via the above email address or by call 416.833.1581 and let us guide you through your tax problem, right to its resolution.
inTAXicating. Where experience counts!