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Home TAX TIPS Our Tips A Christmas list of good deeds and (equally important) tax benefits

A Christmas list of good deeds and (equally important) tax benefits

Having lived through commercial Christmas frenzy for so many years, consumers are maturing, slowly but surely. We no longer desire gifts that will merely please, but rather favor ones that will be financially sensible and socially responsible. We want to be generous to others and smart with our own budget. We’d like to give joy and receive some financial or tax benefits at the same time.

So here is a list of good deeds for those who enjoy both Christmas and money.

  1. If you are a business owner – pay your family! If your family members helped in running your business, show them your appreciation. Not only will you make them happy, but also you will take advantage of income splitting opportunities. Especially, consider those who have no income or are in a lower income tax bracket than yourself. You will deduct those payments from your company’s income and have them taxed at the lower rate in your family members’ hands. Always make sure that your payments are justified and reasonable. Paying $50,000 annually to your teenager for website design will likely result in some inquiry from CRA. But market rate paid to your wife (who has no other income) for administrative help will be considered reasonable in the circumstances.
  1. When considering charitable donations, be especially aware of the much-publicized opinion issued by CRA, stating that you can only claim the amount that you actually spent. Therefore, any donation schemes that allow you to claim higher amount than paid based on valuation or additional contributions by trusts, will likely result in investigation by the taxman. For those of you choosing less adventurous forms of giving, please remember, that the more you give, the more tax credit you get. Donations up to $200 qualify for 21.3% tax credit, while any amounts donated in excess of $200, get 40.16% tax credit. Since you can claim donations from up to 5 previous years, it is usually advisable to claim higher amount in one year rather than smaller amount each year in order to qualify for the increased tax credit. If you own a business, making a donation through your company may be advantageous. You can write of 100% of the donated amount, as long as the donation does not exceed 75% of your net income.
  1. If you have children, consider maximizing RESP contributions in lieu of newest version of iPOD.  You may want to take advantage of the increased federal grant from $400 to $500 annually, and from $800 to $1,000 if there is unused grant room from low contributions made in previous years. This means that each child will be eligible to receive up to $7,200 in federal grant. In addition, the $4,000 limit on annual RESP contributions was eliminated and lifetime limit on RESP contributions increased from $42,000 to $50,000. You may want to use the opportunity to grow the money in your child’s RESP account without attribution rules, which normally require that any interest or dividends be taxed in parents’ or grandparents’ hands.
  1. For self-employed and entrepreneurs, it is advantageous to plan capital purchases just before the year-end. Since in the year of purchase you are allowed only 50% of the amortization amount, it is better to buy your major ticket items as close to December 31, as possible. You will claim amortization for the half year even if you bought your assets at the very end of the year.

Happy giving and many tax benefits everyone!