Here's my top 10 list of tax tips for the April 30 deadline. I've included five tax strategies you can implement now and five more to help you get a head start for the 2009 tax year.
For your 2008 return
1. File on time Most Canadians must file their tax returns by midnight April 30. If you or your spouse or common-law partner were self-employed in 2008, your returns are due on June 15. But any taxes owing for 2008 must still be paid by April 30.
2. Report all capital losses Under our tax system, capital losses can only be deducted against capital gains. While a capital loss must first be applied against any capital gains in the current year, the balance of the loss may either be carried back to offset capital gains in any of the three prior years or carried forward indefinitely to offset capital gains in future years.
3. Claim charitable donations All donations under $200 are credited at 15% federally, plus between 4% to 11% provincially, while donations over the $200 threshold are eligible for a 29% federal credit, plus 11% to 21% provincially. You can pool your donations with your spouse when you file your tax return, allowing you to take advantage of the higher donation credit.
4. Look into pension splitting If you received pension income in 2008, you may wish to split up to half of your pension with your spouse or partner using CRA Form T103 "Joint Election to Split Pension Income." Aside from benefiting from your spouse's or partner's lower rate of taxation, pension income splitting may allow you and your spouse or partner to double up on pension credits, preserve some or all of the age credit and reduce or even avoid Old Age Security benefits clawback.
5. File tax returns for minors Minors with earned income from part-time job or casual employment such as babysitting, should file tax returns to begin establishing RRSP contribution room.
For 2009 Taxes
6. Plan not to receive a refund If you're anticipating a tax refund this spring, that's a sure sign of poor tax planning. You've essentially loaned your hard-earned money to the government, interest-free. Fortunately, it may be possible to get your tax refund throughout the year, instead of waiting until the following spring. To apply, complete CRA Form T1213 "Request to Reduce Tax Deductions at Source."
7. Consider renovating your home For renovations before Feb. 1, 2010, you will be able to claim a 15% non-refundable temporary tax credit, known as the Home Renovation Tax Credit. The credit applies to any expenditure above $1,000, up to $10,000. The value of this new federal credit is equal to a maximum of $1, 350.
8. Contribute to an RRSP/TFSA/RESP/RDSP Canadians now have four tax- preferred plans in which to invest: a registered retirement savings plan, the new tax-free savings account, a registered educations savings plan and the new registered disability savings plan. Get a head start on your 2009 RRSP contribution. Your limit for 2009 is equal to 18% of your 2008 earned income, less any pension adjustment, up to a maximum of $21,000.
A TFSA lets you set aside up to $5,000 of after-tax money in eligible investments which can earn income and/or grow tax-free for life. Withdrawals from a TFSA are tax-free and re-establish contribution room the following calendar year.
RESPs are the No. 1 way to save in a tax-deferred manner for post-secondary education, thanks to the Canada Education Savings Grants and Bonds. Consider contributing as much as $5,000 to an RESP for each child under 18 in order to collect both last year's and this year's grants.
The new RDSP is a tax-deferred savings plan that allows a disabled person who qualifies for the disability tax credit, and is 59 years of age or younger, to save up to $200,000 in a tax-deferred account. Beneficiaries age 49 and younger can also apply for income-tested Canada Disability Savings Grants and Bonds.
9. Convert non-deductible debt to tax-deductible debt Consider making your interest expense tax deductible by paying off non-deductible debt with non- registered funds and then borrowing back for investment purposes.
10. Consider a spousal loan Take advantage of the all-time low prescribed rate of 1% to loan funds to a lower-income spouse or partner so that any investment returns can be taxed in the hands of the lower-income spouse. Note that even though the prescribed rate varies quarterly, you can use this 1% rate for the duration of the loan.