Tax Strategies - Personal
Capital losses
Consider triggering capital losses on investments help as these losses can be carried back three years and offset against capital gains.
Interest deductibility
The interest on money borrowed to invest is generally tax deductible. If you have debt, such as a mortgage on your home, where the interest is not deductible and you have significant investments, you may want to consider restructuring to make the interest deductible. This may be done by selling your investments, using the proceeds to pay off the home mortgage, then, at a later date, borrowing to purchase other investments. Note that there is now some "GAAR" risk with this and similar transactions due to the recently released Supreme Court of Canada Lipson case which disallowed the interest deductibility. Talk to James.
RESP's
Registered Education Savings Plan lifetime contribution limits have been increased to $50,000 with no annual limit. The government has increased its grant to 20% per year on contributions up to $2,500 or $500. The lifetime grant limit remains at $7,200.
Pension income splitting
Commencing in 2007, the government allowed the splitting of up to 50% of certain pension income between spouses. The income needs to qualify for the pension income tax credit to qualify.
Proprietorship vs incorporation
There are many issues to review when considering incorporation of a proprietorship. Some of the more common considerations are: 1) legal liability 2) anticipated earnings 3) tax deferrals and savings 4) income splitting 5) estate planning 6) reporting requirements 7) transfer of sole proprietorship to corporation tax issues 8) availability of other tax benefits to incorporated companies such as enhanced SR&ED claims and IPP's 9) capital gains exemption available to Canadian Controlled Private Corporations.
Employment expenses
Certain employees can claim expenses related to their employment provide their employer completes a T2200. Typical employment expenses include your automobile and related operation costs, cell phone, food and entertainment, accounting and legal, advertising and promotion, supplies, assistants and professional fees.
Business use of home
You must meet one of two tests to be able to claim a portion of your home expenses for employment purposes, your home is either 1) your principle place of business, or 2) is not your principle place of business but is BOTH a) used on a regular and continuous basis for meeting your clients/customers/patients and b) used exclusively for earning income. Expenses that can be claimed on a pro-rata basis are property taxes, rent, hydro, heating, repairs and maintenance and insurance. The allowed deductions vary depending on whether or not you receive employment commissions.
Tax-free savings account ("TFSA")
A TFSA is a registered savings account that allows taxpayers to earn investment income tax-free. Contributions to the account are not tax deductable and withdrawals of contributions and earnings from the account are not taxable. Residents of Canada over 18 are generally eligible to establish an account. Commencing in 2009, you can contribute up to $5,000 per year, with indexing to inflation and rounding to the nearest $500 each year. Any withdrawals the previous year would be added to the contribution room in the current year. Any unused contribution room from the previous year would be added to the contribution room for the current year. Excess contributions will be subject to a tax of one percent per month. Generally, you can invest in similar investments that you can make in your RRSP. There are serious tax consequences of investing in non-qualifying investments. Withdrawals can be made at any time without tax withholdings with the contribution room being added for that withdrawal the following year. Tax filers will be notified of their contribution room on the annual Notice of Assessment.
*This information is provided for educational purposes only and should not be interpreted as a specific treatment plan or course of action and is not a substitute for expert professional accounting and legal advice.
