The last column, "Taking
the 'axe' out of taxes" (Vol 2 No 3) set the groundwork
for saving taxes. You'll need the right attitude if you
really want to save taxes and set it as a priority in
how you arrange your affairs. You'll also need an accountant
who's willing and able to help you achieve your goals.
The first three places to look
for tax savings are likely familiar: deductions; income
splitting, usually with your immediate family; and deferring
taxes as you do with your RRSP. In each area there are
dozens of opportunities to save. Here are a few items
you may not have been taking full advantage of.
DEDUCTIONS
• Childcare deductions Suppose you have
a three-year-old in day care and a seven-year-old in
grade two. You're over the permissible childcare deductions
on the younger child but had no expenses on the seven-year-old.
Deductions aren't attached to a specific child so you
may be able to deduct all your expenses. Two caveats:
the lower-earning spouse must take the deduction and
you need receipts.
• Divorced, separated
If you supported a child under 18 living with you even
for a part of the year you may be able to claim a credit.
It's possible that both you and your ex can claim if
you have an agreement covering part-time custody. Credit
could also apply to infirm parents. Check with your
accountant.
• Deduct interest paid
on student loans Under the Canada Student Loans
act you can claim an interest deduction. Haven't taken
it in the past? Not to worry, you can take it now for
the five previous years.
• Professional dues
If you need to pay fees to maintain your professional
status. You do, so make sure you deduct them.
• Legal fees If you
had to pay a lawyer to recover income that's taxable
in your hands, the fees are likely deductible.
• Good works, great savings
If you earned income from the United Nations or certain
affiliated groups, it's entirely deductible — all
of it!
• R&D credit This
is a good one — don't assume you're not doing any
— you could qualify without realizing it. You may
be eligible for a 20% tax credit — and 40% of that
is refundable so you may get a cheque back from the
government. Work you're doing in clinical studies may
well qualify, talk to your accountant.
INCOME
SPLITTING
• Lend investment money to your spouse If
your spouse is in a lower income bracket, consider lending
him or her money to invest. Set it up properly by charging
interest at the fed's prescribed rate (ask your accountant
what it is, if it's low). You'll pay interest on that
amount but not on the income the investment earns. There
are many wrinkles on transferring money to your spouse
and children worth exploring. Ask your accountant for
details.
DEFERRING
INCOME
• Lifelong Learning Plan to talk to your
accountant about this one. You may be able to deduct
up to $20,000 for your RRSP to be used for educational
purposes for you and your spouse over a four-year period
— and not pay tax on it. Don't miss this one as
physicians can easily qualify.
• Examine your investment
portfolio Review all of your non-RRSP investments
with your accountant from a tax point of view. You pay
more taxes on dividend income than capital gains, for
example. Every time you sell an asset it's subject to
taxes of one sort or another, so for that reason it
makes sense to keep turnover in your stock portfolio
low. 'Tax proofing' your investments could be as profitable
in the long run as the investments you make.
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