Tax time too late for real planning

National Post


Are you a do-it-yourselfer or do you hire others to do your dirty work?

With tax season now officially in full swing, Canadians are divided among those who prefer to crank out their own personal tax returns, using either computer software or in some cases, a pencil, eraser and calculator, and those who take their shoebox of receipts to a professional tax preparer.

But truth be told, filing season is really too late to achieve any meaningful tax savings. After all, what we’re really performing is an exercise in historical reporting. How much did we make? In what form did we earn it? And how much is it going to cost us?

Case in point: Wouldn’t it be helpful if the RRSP deadline coincided with the tax filing deadline? Imagine sitting down at your computer and playing around with the RRSP calculator built into some tax preparation programs that shows you how much an additional $100 of RRSP contributions could have boosted your tax refund. What if you could simply go to your online banking site and make that last-minute, pre-filing RRSP contribution and print off an instant PDF contribution receipt which could be used to immediately to your advantage?

While such a fantasy may be the sole purview of tax geeks, the reality is that there are very few tax savings opportunities you can take advantage of at tax filing time. Perhaps the biggest one is the ability to pension split such income with a spouse or partner. As for other tax filing opportunities? There are plenty of them but they’re not worth a heck of a lot. The much touted children’s fitness credit? Worth a maximum of $75 per child. Spent $100 a month on a transit pass? That translates to a $180 tax reduction.

While none of these opportunities for saving should be passed up, your tax software should automatically calculate these credits provided you properly fill in your data.

So, why not save the expense and simply do it yourself? What’s missing from the return, of course, is opportunities for tax planning throughout the entire year that may have escaped you.

For example, say you sold some stock in 2010 and also made a donation to the local hospital. Did you ever think of donating the stock you sold directly to the charity? If you had done so, you would have eliminated 100% of the tax payable on that gain.

What about your portfolio? Is it strategically allocated from a tax perspective to ensure you are taking advantage of tax-preferred Canadian dividends in your non-registered account while U.S. equities are held inside your RRSP instead of your TFSA so you don’t lose the non-resident withholding tax on foreign dividends?

These are all things a tax pro can ensure you are taking advantage of year-round. My advice? Do a draft return yourself, which is a great learning opportunity, but then have an expert review it, not to double check your math, but to see what’s not there.