Do not wait till January – February RRSP season to do tax planning.

Now is the time to start planning. If you wait till January you will miss out on most tax planning options. For most people in January all you have left is an RRSP.

RRSPs are a good option for many people but the not best for everyone. If you are in a lower tax bracket, the refund from an RRSP deduction is not very high. I have seen situations where people made RRSP contributions when they were in low tax brackets but when they retired the RRSP income combined with other income resulted in paying a higher tax. They were in a higher tax bracket plus they had OAS clawback resulting in an effective tax rate higher than the top bracket. It is best to do some retirement tax planning long before you retire.

TFSAs (Tax Free Savings Account) is a great option. You do not get the tax deduction but you never have to pay tax on the investment income. Zero tax is better than a higher tax rate. Include TFSAs in your planning.

Charitable donations should also be considered. You can carry forward charitable donations up to 5 years. If you contribute $200 per year, it is better to accumulate those donations and deduct $1000 in the 5 th year. You save more tax that way. If it is your first charitable donation since 2007 you can get even more tax back.

If you have capital gains this year you might want sell stocks that are losers in order to offset the tax on the capital gains.

For longer term planning consider starting a business . This is not for everyone, but it is a good way to save on tax. You can reduce tax with income splitting and you can defer tax.

If you have life insurance and you own a corporation, consider selling the policy to the corporation and make the corporation the beneficiary. You do not get a tax deduction for the life insurance but it is paid with money taxed at a lower rate than the personal tax rate. The life insurance payout is still tax free and the cost to you is less.

It is important to consult a financial planner to determine what is best in your situation.

Leave a Comment

Your email address will not be published. Required fields are marked *