It is never too early to start tax planning
Brought to you by the tax professionals at H&R Block
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For many people, filing their tax return by May 1st means they don’t have to think about taxes for another year. Though this is a very tempting idea, tax planning should be a year round activity rather than a once a year chore. Read more
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If your spouse or common-law partner is in a lower tax bracket, consider the following strategies for splitting your income:
- Open a spousal Retirement Savings Plan (RSP). The higher-income spouse claims the deduction for the contribution. However, any subsequent withdrawals will be included in the income of the lower-income spouse, as long as they are not made within the following two years.
- A lower-income spouse can also contribute to non-registered investments such as GICs or savings accounts since interest earned will be taxed a lower rate. The higher income spouse can use their earnings to pay for things such as the mortgage and household expenses.
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Seniors should also investigate the possibility of splitting their CPP retirement benefits with their spouse. Whether or not you can do this depends on how long you lived together when you were contributing to CPP.
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For parents looking to save for a child’s education, consider a Registered Education Savings Plan (RESP). Unlike a regular savings account, any income earned in the plan accumulates free of tax. When it comes time to cash it in, it will be taxed in the child’s hands. For most students, this will be at the lowest tax rate.
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There are other incentives to contribute to an RESP. The government provides a matching 20% contribution of up to $400 per year. Beginning in 2005, there are also enhancements to the CESG for lower-to-middle income families. And if you are entitled to the Child Tax Benefit Supplement, the government will contribute a $500 Canada Learning Bond in the year of birth, plus $100 per year for every year until the child turns 15.
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Remember, the interest on investment loans is tax deductible whereas loans for personal-use property are not. So it could benefit you to use your spare cash to buy things such as furniture and computers and take out loans to buy investments. Unfortunately, interest on RSP loans is not deductible.
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So take some time to think about your taxes this year because it could mean next year’s tax bill is a little less painful.
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visit H&R Block online.
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