Make the right moves now
1. Be sure to adjust your prior filed returns
for errors or omissions before the end of the year, especially if you
suspect CRA owes you money. Remember, the 2008 tax year is statute-barred
as of January 1 so you’ll leave money on the table forever if you miss this
2. Plan your income sources.
Earning a variety of different income sources with different tax attributes
can help you to “average down” the taxes you pay.
3. Time your income receipts.
If you expect your income to be higher next year, go ahead and pull out
that extra $5,000 from your RRIF to surprise your spouse with a vacation.
If your income will be lower next year, fund that vacation from another
source, and save the extra RRIF withdrawal until next January to postpone
that extra taxable RRIF income for a year.
4. Don’t skimp on your RRSP contribution.
An RRSP contribution will increase your tax credits and your after-tax cash
flow, too, because it will help you reduce clawbacks of important social
benefits you’ll receive all year long.
5. Top up your RESP contributions.
It’s a gift that will generate a Canada Education Savings Grant for you,
which will embellish on education savings opportunities for your family.
6. File family tax returns together.
Because many credits are based on “family” rather than “individual” net
income, you and your spouse need to file tax returns together. It’s a smart
start to the new year to focus on family tax planning. Hunting down and
organizing receipts early can really help, to avoid the annual tax filing
panic. Spend some time getting organized now, before the tax-filing
deadline, if you can.
Tax tools of the trade
* Own a private corporation?
File a T2 corporate tax return and pay attention to the new Tax on Split
Income rules for adults starting in 2018. As well, inquire about the new
rules regarding passive investment income in a private corporation, which
begin January 1, 2019.
* Sold or transferred your home?
Form T2019 Designation of a Property as a Principal Residence will need to
be filed. It’s complicated, so be sure to solicit some professional help
* Leaving Canada for good?
List reportable properties with your final T1 return: T1161 List of
Properties by an Emigrant of Canada. You may have a departure tax, so get
some experienced professional help.
Your audit-buster checklist
Keep meticulous tax records – in order – all year long to save time and
money on filing your audit-proof tax return. This is your first defence in
the tax filing requirement.
Preserve your appeal rights:
Take note of the date on your Notice of Assessment or Reassessment – CRA’s
response to your tax filing. This is used to determine your further appeal
rights. Keep a hard copy of this form with your permanent tax records.
A departure tax is payable if you leave Canada permanently, but it’s
reversible if you change your mind. Keep all your tax records.
Understand the different definitions of income – both active and passive –
and the power that CRA auditors have to challenge their tax attributes. On
an audit, you may need to prove why an investment should be considered
passive rather than active in nature, to save tax dollars.
Beware of the potential for income recharacterization:
CRA can consider a single transaction or a series of transactions to be
business income (100% taxable), although you filed them as a capital
transaction (50% taxable). The burden of proof is on you to convince CRA
why you are right. Keep detailed records about the reasons for the
transaction, its relationship to your regular line of work and other
criteria set out by CRA in its Interpretation Bulletin 459.
These tax tips were excerpted from Evelyn Jacks’ book
Essential Tax Facts: How to Make the Right Moves and Be
Audit-Proof, Too, which has been fully updated with the information you need to know when
filing your 2018 taxes.
© 2019 The Knowledge Bureau, Inc. All rights reserved. Reprinted with
is the founder and President of Knowledge Bureau, which
brings continuing financial education in the multiple areas of
specialization to advisors and their clients. She is the author of 52
books on tax and wealth planning. This article
originally appeared in the
Knowledge Bureau Report. Follow Evelyn Jacks on Twitter
@EvelynJacks. Visit her blog at www.evelynjacks.com.
Notes and Disclaimer
The foregoing is for general information purposes only and is the opinion
of the writer. No guarantee of investment performance is made or implied.
It is not intended to provide specific personalized advice including,
without limitation, investment, financial, legal, accounting or tax advice.