Building your Financial
With Alain Aube
More of your money for you! -
that's the big difference between tax preparation and tax planning
It's tax-time again - and if you're stressing over the last-minute
preparation of this year's return, you've got plenty of company.
Unlike home insurance plans which anybody can fix at anytime, tax concerns should be anticipated earlier.
Most Canadians wait until the last minute to file. But bumping up against the
tax deadline year after year isn't just stressful, it's costly. When you
toss a bunch of numbers on the forms just to get them in the mail by the
deadline it's bound to cost you your money - in errors, omissions, and
poor tax strategies. But by starting now to plan for the next tax year,
it's likely you'll see a worthwhile reduction in your taxes - and your
tax preparation process should be easier, too.
Here are some tax planning tips guaranteed to reduce your stress level
and possibly lower your income taxes when prep time rolls around next
ˇ Get it all on the record: Make your task manageable by setting up a
simple record-keeping system that tracks all your finances for tax
purposes. Include all your receipts for expenses that qualify for tax
deductions - such as eligible moving expenses, accounting fees and
investment management fees - that will reduce your taxable income and
tax bite. Start now and be diligent about keeping your records
up-to-date. This is especially important if you are self-employed or
earn commission income.
ˇ Register all your savings: Your Registered Retirement Savings Plan (RRSP)
could become the essential foundation of your financial future. Make it
even stronger - and take full advantage of its unique tax-reducing,
savings-building opportunities - by maximizing your RRSP contribution
every year. And plan to do it early in the year to reap the full
benefits of the "magic of compounding". Avoid having to come up with a
lump sum contribution by starting a Pre-Authorized Contribution (PAC)
program that each month makes an automatic contribution to your RRSP
from a bank account.
ˇ Spouse-up to tax-down: If you expect to generate more income than your
spouse in retirement, consider a spousal RRSP. You contribute for your
spouse, but get the tax break on your tax return. And by helping to
balance your retirement income with that of your spouse, you'll likely
lower your combined tax bill in retirement, too. A spousal RRSP isn't
necessarily the best solution for everybody though - for example, there
might be concerns about who "controls" the proceeds of the RRSP or that
a spouse's creditors could seize the funds - so it's always a good idea
to speak with your financial advisor before jumping into one.
ˇ Be a tax-savvy investor: You can actually reduce your taxes through a
well-planned investment portfolio. One good way is to keep
"heavily"-taxed investments (those that earn interest income that would
otherwise be fully taxed at your marginal rate) inside your tax-deferred
RRSP or RRIF (Registered Retirement Fund), and those that benefit from a
"lighter" tax treatment (those that derive investment income from
preferentially-taxed capital gains or Canadian dividends) outside your
ˇ RESPs earn high marks for lower taxes: Registered Education Savings
Plan (RESP) contributions deliver valuable tax-deferral and
income-splitting benefits. And in most cases, the government will add a
Canadian Education Savings Grant* to your child's education investment.
ˇ Move now to save later: If you're relocating to a province with a
lower tax rate, do it before December 31 and you'll pay taxes for the
entire year based on the lower rates in your new province.
ˇ 69 this year? If you're turning age 69 in 2005, you'll be required by
law to wrap up your RRSP by December 31. Explore your retirement options
right away to avoid a big tax hit.
ˇ Pay on time: Make all required
personal income payments on time to avoid penalties and interest.
ˇ Aim for a zero refund: That tax refund
isn't a gift to you, it's your money that the government has had for its
use interest free. Keep your hard-earned dollars working for you through
the year by requesting a reduction in taxes withheld at source based on
you making RRSP contributions, child care expense payments, or support
It's a fact: tax planning pays - in reduced taxes, better wealth
accumulation and a huge decrease in deadline stress. You financial
advisor can help develop a complete tax planning strategy that fits your
current and long term financial needs and goals.
*CESG provided by Human Resources and Skills Development Canada
This column, written and published by
Investors Group Financial Services Inc., is presented as a general
source of information only and is not intended as a solicitation to buy
or sell investments, nor is it intended to provide professional advice
including, without limitation, investment, financial, legal, accounting
or tax advice. Insurance products and services distributed through I.G.
Insurance Services Inc. Insurance license sponsored by The Great West
Life Assurance Company. For more information on this topic or on any
other investment or financial matters, please contact your Investors