There are ways to pay less in taxes - but you must act before December 31
TORONTO, Nov. 27, 2012 /CNW/ - Canadians who want to take full advantage of the various tax credits, deductions and other opportunities for tax savings, need to act quickly, before year end, says CIBC's tax and estate planning expert, Jamie Golombek.
"With 2012 drawing to a close and the very busy holiday season approaching, Canadians shouldn't forget tax planning opportunities that may disappear if they don't act before year end," said Mr. Golombek. "There are a number of easy ways for Canadians to reduce taxes that they might otherwise owe - but in many cases you need to act before December 31."
Mr. Golombek cites the most overlooked strategies from his recent report:
Donate to your favourite charity
December 31 is the last day to make a donation and obtain a tax receipt for 2012. Many charities offer the ability to donate online, with electronic tax receipts that are generated and emailed to you instantly. For example, if your total 2012 donations exceed $200, each additional $100 donation in 2012 can get you up to $100 back, depending on your province of residence.
Contribute to an RESP for your child or grandchild
The federal government provides a Canada Education Savings Grant of 20 per cent on the first $2,500 of annual RESP contributions per child, which can add up to $7,200 to an RESP during a child's lifetime. If you haven't maximized RESP contributions for your children or grandchildren, you can make an enhanced catch-up contribution in 2012.
If your child turned 15 in 2012 and has never been an RESP beneficiary, December 31, 2012 is your last chance to contribute to an RESP to create CESG eligibility. For example, by contributing $2,500 to an RESP, you could get $500 of CESGs added to the RESP account, usually by the following month.
Pay expenses by year end to be eligible for tax deductions and credits
Claiming expenses, such as interest on money borrowed for investing or student loans, daycare fees and children's fitness or arts fees, can all provide benefits at tax time. However you must pay these expenses by the end of the year to realize the tax savings for 2012. For example, paying $500 for your children's winter swimming lessons before year end could mean up to $75 in reduced taxes.
Review your investments
The end of the year is a good time to review the types of investments you hold, and the accounts in which you hold them. Investments yielding highly-taxed interest income may be best-suited to RRSPs or TFSAs, while Canadian equities, which can generate favourably-taxed dividends and capital gains, may be more suited to non-registered accounts. If you are planning a TFSA withdrawal in early 2013, consider withdrawing the funds by December 31 instead, so you don't have to wait until 2014 to be able to re-contribute that amount.
Prepare for retirement
There are a number of tax considerations for those just entering into their retirement years:
- If you turned 65 in 2012 and have not yet applied for Old Age Security benefits, remember that retroactive benefits, which can be worth over $6,500, can only be claimed within a limited time. To receive those benefits, you should apply as soon as possible.
- If you turned 71 in 2012, you have until December 31 to make any final contributions to your RRSP and convert it into a RRIF or registered annuity.
"These tips are some of the most commonly overlooked, easy ways you can act now to benefit from tax savings when you file your tax return next spring," says Mr. Golombek. "But keep in mind that tax planning is a year-round affair. Speak to your accountant or tax advisor well in advance of tax filing season to get more information on how to reduce your taxes."
More details are available in Mr. Golombek's report, 2012 Year End Tax Tips.
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