Smart tax moves and audit busters for 2019

This year, resolve to get ahead of the tax-filing crunch

It’s the new year, and tax-filing season is just a few short months away. Resolve now to make the right tax moves now, and be audit-proof too. Here are six tax strategies to get you started, along with three important forms to file, and five audit-busting tips.

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 opportunity.

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 with this.

* 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

Get organized: 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.

Globetrotters: A departure tax is payable if you leave Canada permanently, but it’s reversible if you change your mind. Keep all your tax records.

Investors: 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.

Evelyn Jacks 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.