Lump of Coal for CRA
Did the headline catch your eye? Don’t get me wrong, I like Canada Revenue Agency! As they keep making taxes more complex by adding more tax credits, it ensures I stay in business as a professional tax preparer!
My goal every year with each client is to make sure you pay the least amount of income taxes possible. I’m not encouraging tax evasion (that’s not paying taxes you are legally required to pay). I’m talking about tax avoidance: the perfectly legal way of arranging your tax affairs to pay the least amount of taxes possible or deferring taxes into the future.
There are a few things you need to do before you hoist that glass of bubbly on New Year’s Eve if you want to minimize your taxes for the 2011 tax year or minimize taxes in the future.
Let’s start with one tax credit that can lower your taxes payable that affects many of us living outside Winnipeg that often gets missed.
Medical Expenses can include medical travel if you need to travel more than 40km (one way) to get a medical service you cannot get locally. Often this is a specialist in Winnipeg. Take a look at your 2011 calendar or any other place you keep track of your medical appointments. Make sure you don’t throw it out before you get your taxes done before April 30 2012. Or make a list of the appointments including date, distance travelled, name of professional and reason for appointment. Remember how much you paid for parking too!
At about 50 cents per kilometre, it can add up. If you live farther away and had to drive at least 80 km one way, you can also claim a meal ($17) and accommodations.
If you already know you will be claiming the medical expense credit for 2011, maybe incur more expenses before the end of the year instead of early 2012 so you increase the credit. You can claim the entire family’s medical expenses on one tax return (normally the spouse with the lower taxable income). And it includes many items including health care premiums you pay yourself (deducted on your pay stub or your pension), travel health insurance premiums, all dental, prescriptions, massage therapy, chiropractor, and more. Every medical expense that you have to pay out of pocket is normally included in the medical expense credit.
Children’s Fitness and Arts Credits. Make sure you have your receipts for any sports or dance programs your children were in for 2011. And new for 2011 is the Arts credit. So if you children were involved in music, arts, scouts or cadets keep those receipts too!
Registered Education Savings Plans need to be contributed to before December 31. Now this isn’t an immediate tax savings, but if you are planning to save some money for your children to pay for some future education, it’s a great way to get some Education Grants and Bonds (free money!) and the grant/bond and income earned likely won’t be taxed in the future by the student because they are normally offset by the tuition credits.
Donations to Charity need to be made before December 31 to count on the 2011 taxes. Once the total contributed exceeds $200, then you get a credit of 46%! So whatever you plan to give to your favourite charity, it’s like forcing CRA to pay for almost half of it!
How about a family charitable foundation? This is my plan for next year (considered it too late for this year). My parents pay very little tax because of the credits that reduce their taxes payable to zero, but they like to donate to some favourite charities.
Here’s my plan for them. They create a foundation (minimum $25,000) that will make annual donations forever (a way of ensuring donations are made even after they are gone). Because they pay no taxes, they will not benefit from the donation credits, but their children will! So they could give each of us five children $5,000 and we donate it to the Markmann Family Foundation (via Mackenzie Investments). Each of us will receive a tax reduction of almost $2500 on our 2012 taxes. And my parents know that a percentage of the Foundation is given every year indefinitely to the organization of their choice. Looks like a win-win for all of us; all thanks to Canada Revenue Agency.
Spousal RRSPs can be purchased by the end of February 2012, but if you are getting close to retirement, you may want to do it by December 31. That’s because the contribution has to stay for two full calendar years before it is withdrawn by your spouse. So if you do it by December 31 2011, then you wait 2012 and 2013 and your spouse can withdraw it in 2014 if you make no further contributions.
Did you receive disability income this year or recently? Did you pay for any of the premiums yourself over the years (deducted on your pay stub)? If so you can deduct those premiums from the taxable disability income. This is a little known deduction that often gets missed by many tax preparers and accountants. Remember we can adjust your taxes for the past 10 years if it was missed in the past. It can be difficult to get this info from employers. I had one client that fortunately kept all her pay stubs from the past 20 plus years so we were able to get the adjustments done and get her some tax refunds for the years she received disability income.
The disability tax credit is not necessarily due December 31st, but I always meet people that don’t know about it. If you or someone you know had knee or hip surgery in the past 10 years, make sure you get the disability tax credit form competed! If you needed to have replacements, it was likely that your mobility was affected for more than 12 months, then you can likely claim the credit for one or more years. Also, if someone passed away due to an illness, the disability tax credit can normally be claimed on the final tax return (or transferred to their spouse’s tax return). I know it’s a difficult subject at times, but I do try to find a way to get it into a conversation.
The Registered Disability Saving Plan is fairly new. If you or someone you know qualifies for the disability tax credit and is 40 to 49, they really need to get this plan started now to take advantage of the credits and bonds available.
Business expenses are based on the calendar year, so if you have a business that you claim on your personal income tax (solo business or partnership or rental income) maybe incur some additional expenses before December 31. While on the subject of the self employed, remember to read your odometer at the end of the year so you can properly claim your vehicle expenses.
If any of these items triggered some questions, please feel free to call me or stop by my new office!
Wishing you a very Merry Christmas and a Healthy, Happy New Year! Thank you for the privilege of helping you with some of the financial parts of your busy life in the past year.
Anni Markmann, is a certified financial planner and professional tax preparer working, living, volunteering and supporting our community. Contact Anni at email@example.com or 422-6631 or 36 Dawson Road in Ste Anne.