As
the proverbial phrase goes, April showers bring May flowers. As a Canadian
taxpayer however, the end of April also brings the annual personal tax filing
deadline.
To brighten what might seem like a rainy day, here are a number of
new and ongoing tax credits and benefits that could reduce the personal taxes
that you may owe.
Tax-Free Savings Account
New
for 2009 and effective for all subsequent taxation years, Canadian residents
(18 years of age and older) are now eligible to make contributions to a
Tax-Free Savings Account (TFSA) up to a maximum of $5,000 at any RRSP-issuing
financial institution. Much like an RRSP, new contribution room accumulates
annually in the TFSA and any unused contribution room is carried forward to
subsequent years. Over-contributions are similarly penalized at 1% per month. Married
or common-law spouses also have the added benefit of being able to contribute
to each other’s TFSA allowing for additional tax planning strategies. Compared to an RRSP however, the capital
contributed to a TFSA does not create a tax break, but the new and unique
feature of using a TFSA over an RRSP is that any investment income earned in
the account is never taxed! Furthermore,
invested capital can also be contributed and withdrawn without penalty at any
time in a TFSA and withdrawn amounts will restore the contribution room in the
following year. These are the more
notable features of the new TFSA.
RRSP Income Inclusion
Speaking
of RRSPs, did you know that the age in which RRSPs must be converted to retirement income was raised
from 69 years of age to 71 in 2007? This extends the amount of time taxpayers
can contribute to their RRSPs so that they receive
additional tax breaks on their contributions plus tax-free growth on their
investments for an additional two years. Accordingly, if you have more
significant sources of other income, you should consider delaying the
redemption of your RRSP income to defer and further minimize your taxes.
Pension Income Splitting
Continuing
from last year, fifty percent of eligible pension income received by one spouse
or common-law partner can be allocated to the other spouse or common-law
partner. While a joint agreement must first be signed by both taxpayers and
they must have been Canadian residents at the end of the year, this is a
welcome tax planning strategy for couples with significant pension income as it
attempts to equalize each taxpayer’s tax bracket thereby possibly reducing the
total taxes paid by both taxpayers. One
caveat though is that if the taxpayer is not yet 65 years of age by the end of
the year, then only the income eligible for the $2,000 pension income credit
would be eligible for this income split (otherwise the full amount of eligible
pension income could be split).
Lifetime Capital Gains Exemption
As
business owners and possibly nearing retirement, you may have heard of the
$500,000 lifetime capital gains exemption.
In fact, you may have even used up your lifetime limit in past tax
planning strategies (please consult with your accountant). The good news is
that for all dispositions on or after March 19,
2007, the limit was increased from $500,000 to $750,000 creating the ability
to shelter an additional $250,000 of eligible capital gains.
Given
that the above tax benefits and strategies need to be applied individually, we
recommend you discuss your circumstances with a professional accountant. Hopefully
some or all of these tax benefits and strategies will benefit you with a
pleasant tax refund in the flowery month of May (or reduce the amount of taxes
owing)!
For
more information the discussed tax benefits and strategies or other accounting
matters, please contact a member of the Tax Group at Wolrige Mahon LLP.
