How your tax return can be your financial guide
Think tax season is over? Well, I think it's just beginning.
While most Canadians think of tax season concluding with the April 30 filing deadline that just passed this week, keep in mind that this date only marks the due date for submitting your 2012 tax return.
But if we take a more holistic approach to tax planning, it should be something we take seriously all year round - not just once a year when it comes time to file our returns. But, where to begin?
I think it's worthwhile taking a fresh look at your 2012 return this spring, not to see what's there but rather to see what's not there. All those empty lines represent potential missed opportunities for tax savings, beginning on page two with the calculation of your total income.
For example, do you have anything on line 120, "Taxable amount of dividends?" If not, you are missing out on the opportunity to earn tax-preferred Canadian dividend income in your non-registered portfolio. Take an Ontario investor making $75,000 per year, before taking into account any investment income. If she earned $2,000 annually in interest income, her marginal tax rate on that incremental $2,000 would be 33% costing her $660 in additional tax. If, on the other hand, that $2,000 was in the form of eligible Canadian dividends, perhaps from owning shares in a blue chip company, either directly or through a mutual fund, those dividends would be taxed at marginal rate of only 14% resulting in an incremental tax bill of only $280. That represents a savings of more than 55% over interest income.
What about line 127, "Taxable capital gains?" If the same $75,000 per year Ontarian were to receive $2,000 of capital gains, from the sale of stock or some other investment, her tax bill would be cut in half and she would face a marginal tax rate of 16.5% and pay only $330 of tax on that $2,000 gain.
Turning now to page 3, line 208 is for claiming an RRSP deduction. If you are one of the 22.7 million people who, in total, are sitting with cumulative unused RRSP room of $772.5-million, you should consider whether starting a regular, monthly RRSP savings plan for 2013 may be a better way to take advantage of that deduction on your 2013 return instead of trying to come up with the money next RRSP season. You can verify exactly how much unused room you have when you receive your 2012 Notice of Assessment.
Finally, take a look at Schedule 1, "Federal Tax," to see if you are taking full advantage of as many of the more than 25 different non-refundable tax credits available to you, from the volunteer firefighters' amount, to the credit for monthly public transit passes to the fitness and arts credits for the kids.
And last but not least, there is a new credit that wasn't on last year's form - the first-time donor's super credit, which is worth an additional 25%, starting in 2013.