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Home TAX TIPS Our Tips Beyond tax filing deadline

Beyond tax filing deadline

April 30 has passed and once you cut a cheque to Canada Revenue Agency or received a refund, it’s time to put your tax worries to rest until next year. Or is it to the contrary? Well, if you really want to maximize your after tax returns on all your earnings, you do need to plan well head of April each year. Here are several tips that will help you being prepared and making smart choices.

1. For RRSP holders: While investing in RRSP effectively reduces our income, some types of investments perform better than others when held in RRSP, at least from the tax savings perspective. Since when withdrawn or transferred to annuity RRSP is being taxed as regular income, it is better to choose investments producing interest or resulting in dividend distribution, than those that give raise to capital gains. When held outside of RRSP, only 50% of capital gains are taxable, but when withdrawn through RRSP they loose their privileged character and are taxed at full value according to our marginal rates.

2. For proud parents: Investing for minor children can be very tricky. Any investment that produces interest or dividends will always be attributed to the parents, even if the account is registered in child’s name or is held in trust for a child. However, investments resulting in capital gains can be registered in child’s name and will be taxed in child’s hands. Attribution rules pertain only to the children under 18 years of age. Income splitting with adult children is far less restricted.

3. For investors: If you are poised for some sophisticated financial products, limited partnerships may be an interesting option. Investing in certain exploration and mining stocks may give rise to unique tax credit opportunities. However, as it is a very complex product, it is important that sound financial advice be obtained before committing. You also need to weight the overall risk in such investments versus tax savings. Many of these investments are released on a very limited basis, so shopping for them can be sometimes quite an undertaking. They must be purchased in a given tax year. Therefore if you want to use them for 2007, they must be purchased before Dec 31.

4. For philanthropists: While charitable donations are widely known as tax reduction vehicle, some taxpayers are more aggressive in giving than others. There are numerous organizations promoting large refund opportunities, generally based on the premise that fair market value of donation is much larger than what you spent on it, therefore generating handsome tax benefits. In recent years Canada Revenue Agency has taken a strict stance on this issue and as a rule of thumb allows you to claim only what you actually paid for, effectively overriding any valuation claims related to donations. Planning is extremely important in structuring your financial affairs. Reducing taxes is no exception. Waiting till February is only possible for the last minute RRSP contributions, and even in this case making regular payments throughout the year can maximize your retirement funds. So perhaps when packing for your cottage this summer consider some financial and tax planning guide as a must read. This can be actually leisure time well spent.