Don’t Just File Your Taxes – Plan Them!

self-employed-stop-killing-your-business-with-accounting-costs

With tax season still months away, most of us are too busy preparing for the holidays to give our tax returns a second thought. While we all want to pay as little tax as possible most of us don’t take the time to plan our taxes.  We wait for March or April to roll around and then madly scramble to get them filed before the deadline.  The truth is if you want to file the best possible tax result you need to put some effort into the planning before tax season rolls around.  Just like last minute holiday gift buying – you don’t always get the best bargain for your buck if you don’t plan ahead.  Being aware of any changes in Canadian Tax Laws early could save you a great deal of stress at tax time.  Here are a few changes that have been proposed or approved to be aware of:

 

  1. Income Sprinkling

Some of the more recent proposed changes that could affect you next tax season include new tax measure against income sprinkling.  Income sprinkling is the process where a small business owner can distribute their business income with his/her spouse or an adult child – even if they are not employees. If the spouse or child is in a lower tax bracket, this sprinkling can result in huge tax savings. If the proposed change goes through it would mean restrictions on the ability to pay salary or wages or dividends to adult children aged 18-34. Adult children will be assessed to determine whether they contribute to the business and whether amounts paid to that child should be taxed at his or her normal tax rates or at the highest tax rate possible.

  1. Tax on Foreign Properties

If you live in Ontario and own foreign property you should be aware that the Government of Ontario has announced a 15% punitive tax on foreign property.  Furthermore, the Federal Government now requires that all property sales must be reported with the tax return even if you sold your principle residence. Failing to report could result in hefty penalties.

  1. Converting Income to Capital Gains

If you’re incorporated, you may have converted what would otherwise have been taxed as salary or dividends into capital gains. This process usually involved selling of some shares to another company related to the shareholder. The government proposes to close these opportunities by tweaking section 84.1 of our tax law, which was intended to prevent this type of planning.

 

Tax credits such as children’s fitness tax credit, arts tax credit, public transit credit are being reduced or completely discontinued. As changes to tax are becoming more complicated and changing every year it is more important than ever to sit down with a financial advisor or tax expert to plan to reduce the amount of tax you’ll need to pay at tax time. Tax planning is just as important as tax preparation and savings tools such as a TFSA (tax free savings account) is just one of the things that could save you money in the end.

 

The best time to plan your taxes is now. With RRSP season just around the corner take this opportunity to speak with your financial advisor about making a contribution. And remember, to be eligible for deduction in the previous tax year, your RRSP contribution must be made before the end of the first 60 days of the current year. This year, the RRSP contribution deadline for the 2017 tax year is March 1st, 2018. The annual contribution limit is 18% of your earned income for the previous year to a maximum of $26,010.

 

Finally, don’t wait until March or April to figure out how you’re going to get the biggest tax refund ever or how you’re going to minimize the amount of taxes you owe.  Get ahead of the game by having a year round approach to the amount of tax you plan to save so come next holiday season you can just sit back and enjoy the holidays.