TAX SAVING TIPS

Please visit this page often --  New Tips are added frequently.

 Use these tips to trim your tax bill with smart strategies that can add up to tax savings.

• Make RRSP contributions automatic Set up an automatic contribution plan throughout the year. Either arrange to have deductions taken directly from your pay cheque or have the funds debited from your bank account each month and deposited into an RRSP.
  For example: By contributing $100 each month, you'll boost your retirement nest egg to $138,029 after 35 years (assuming an annual return of six per cent).  Compare that  with $131,272 if you had invested the same amount in yearly $1,200 lump sums. To learn how you can do it, click here
  
  
• Pay your RRSP fees from inside
  Consider paying an annual administration fee from inside your RRSP since that is essentially the same as a tax-free withdrawal. Annual administration fees are not taxed as income when paid from assets inside the plan.
  
  
• Make a final RRSP contribution
  If you have earned income in the year in which you have turned 71 years -- you are required to convert your RRSP to a Registered Retirement Income Fund (RRIF); you will have RRSP contribution room in the next year, but no RRSP. You may want to consider making your next year's contribution in December, just before your required conversion date. The penalty for over contribution is 1% per month on the portion that exceeds your contribution limit. But, on Jan. 1, your over contribution disappears and you'll get a tax deduction on your next year's tax return.
  
  Remember, you don't have a 60-day grace period with your final RRSP contribution. You have to make your final RRSP contribution by Dec. 31 of the year you turn 71, not March 1 of the following year.
  
  
• Set up a spousal RRSP
  A spousal RRSP allows you to split future retirement income with your spouse. If you will be in a higher tax bracket than your spouse in retirement, consider a spousal RRSP. You will get the tax deduction, but when the money is taken out, it will be taxed in the hands of your spouse, who is in a lower tax bracket.
  
  
• Contribute to a spousal RRSP after age 71
  Regardless of your age, if you have qualifying earned income or unused RRSP contribution room, you can contribute to a spousal RRSP prior to Dec. 31 of the year your spouse turns 71 and claim the deduction for the contribution on your tax return.
  
  
• Transfer a RRIF back to an RRSP
  If you are not yet 71 and find you don't need your RRIF income, you can transfer your RRIF back to an RRSP and tax shelter the capital until you are 71. Keep in mind that the RRIF will still pay out the minimum required amount for the year in which the transfer occurs.
  

• Invest in a Registered Retirement Savings Plan (RRSP)
  The RRSP is still one of the best tax savings (tax deferral) vehicles available to Canadians.
  Choose RRSP investments that generate interest and other income, such as Guaranteed Investment Certificates (GICs), money market funds or bond investments.

• Borrow money to save money If you don't have extra cash for an RRSP contribution, you may be better off borrowing the money than not contributing at all. The long-term benefits of deferring taxes and earning compound interest outweigh the interest costs of borrowing to make a contribution.
  
  Note: Hold off on the loan if you have a whopping credit card bill. It makes more sense to pay the credit card off first.
  
  
• Avoid getting a tax refund
  That does not sound right!  But while getting back a juicy tax refund may feel good, a large return is actually a sign of poor tax planning. Think of it as giving the government an interest-free loan.  While that money was sitting with the government for 12 months, it could have been earning you interest in an investment. To keep that money in your own pocket, ask your employer for a T1213 Form to reduce the amount of taxes taken off your pay cheque each month. Click here to learn how to reduce pay cheque tax deductions.
  TIP: Put that extra $150 a month on a $200,000 mortgage at six per cent amortized at 25 years and your mortgage will be paid off five years earlier -- a savings of $43,254.
  
  
• Spend less This is like stating the obvious.  However, spending less money is the most overlooked way of reducing your tax bill.  We always think in terms of income tax and forget that we pay GST plus PST for most products we buy.
  TIP: Keep your purchases to a minimum to avoid tax.
  
  
• Invest in your kids
  If you have school-age children, consider contributing to a Registered Education Savings Plan (RESP). You won't get a tax deduction, but the earnings will grow tax-free for up to 25 years or until the funds are withdrawn by your college-bound scholar.
  TIP: Make a contribution of up to $2,000 a year for each child under 19 and Ottawa kicks in free money -- a Canadian education savings grant of 20 per cent of your contribution to a maximum of $400 a year.
  
  
• Reap the benefits of the self-employed
  If you own your own business, consider paying your kids or a lower-income-earning spouse a salary or wages and deduct it against your income.
  TIP: If you work out of a home office, you can also write off a portion of all eligible home costs, including mortgage interest, property taxes and utilities.
  
  
• Make moving costs count
  While moving house and home is never easy, there are some major tax breaks to help ease the pain. If you relocated over 40 kilometres  to start a new job or business, you can deduct most of the costs.
  TIP: A lot of moving deductions get missed because people aren't sure what they're entitled
  to. For a full listing of moving expenses, click here.
  
  
• Add up all your medical expenses
  Many of us assume we don't have enough medical expenses to get a tax credit (the federal portion is 15% of expenses in excess of 1926 or 3% of net income, whichever is less), but they can add up quickly. Look for things that aren't an eligible expense under your group plan and don't forget to include any health-care premiums you're paying at work.
  TIP: Keep in mind that you can claim expenses for any 12-month period ending in the tax year you're filing (June 2006 to May 2007, for example), so pick the period that includes as many expenses as possible to maximize the credit.
  
  
•  Claim all your child care
  "A lot of parents think if a neighbour is taking care of their child, they can't claim it," says Hamel.
  "But if you're paying someone and getting a receipt for it, it's a child-care expense." Generally, the lower-income-earning spouse makes the claim, which is either teh actual amount paid or  two-thirds of your earned income or the total of the individual maximums for each of your children ($7,000 for each child under seven and $4,000 for children seven to 16), whichever is less.
  TIP: Make sure you report all your children 16 and under on your tax return, even if you didn't incur child-care expenses for some of them. The tax collector doesn't attach specific child-care expenses to specific children.
  
  
• Don't overlook the child disability credit
  If your child has a severe, long-term physical or mental disability, don't overlook the Child Disability Benefit (CDB), which increased to a maximum of $2,351 a year.
  TIP: To apply for the CDB, you must have Form T2201 completed and signed by a qualified medical practitioner. These forms are processed throughout the year, so you don't have to wait until it's time to file your tax return to apply.
  
  
• Find back-to-school savings
  When it comes to paying for Junior's skyrocketing tuition fees, every little bit helps. The new textbook tax credit, for example, will put up to $65 per month right back into your pocket. Qualified Children's Fitness programs also get you Tax Credits.
  TIP: Remember, too, that any tuition fee and education credits your post-secondary scholar doesn't need to reduce his own tax can be transferred to you, up to a maximum of $5,000.
  
  
• Take advantage of the Canada Child Tax Benefit and National Child Benefit
  If you had a new addition to the family in the past year and your household income is less than $37,178, make sure you've applied for the Canada Child Tax Benefit. You'll receive $1,283 annually for each child, plus an additional $90 for the third and subsequent children. The National Child Benefit (NCB) supplement for 2007 is $1988 for the first child, $1758 for the second child and $1673 for each subsequent child.
  TIP: You may also qualify for the new Canada Learning Bond, which provides $500 for each child born after Jan. 1, 2004, and an additional $100 per year in grant money for up to 15 years.
  
  
• Don't overlook the Universal Child Care Benefit
  The Universal Child Care Benefit (UCCB) payment of $100 a month is available to any child under the age of six regardless of the family's income (keep in mind that amounts received under the UCCB will be taxable in the hands of the lower-income spouse).
  TIP: If you're already receiving the Canada Child Tax Benefit, you'll receive UCCB payments automatically; otherwise, you have to apply with CRA.
  
  
•  Pool your charitable donations
  If you and your spouse both make charitable donations, combine the receipts and claim them on one return (you only get a 15 per cent tax credit for your first $200 of donations but 29 per cent for everything over that).
  TIP: Donations you made in 2007 can be claimed any year up to 2012.
  
  
• Get credit for caring
  If you're the caregiver for an ill or aging parent, grandparent or other disabled dependent who is over 18 years old, you may be able to claim the Caregiver's Tax Credit.
  TIP: Your dependent's net claim must be less than $12,509 to qualify, and your maximum claim is $3,663.
  
  
• Travel the tax-friendly way
  If you or a family member uses public transit, make sure you save those pass receipts. They could add up to $100 in tax savings per family member per year, thanks to a new nonrefundable tax credit that kicked in July 1, 2006.
  TIP: The passes have to be for a period of at least one month to qualify.
  
  
• Make maximum use of your investment losses
  You can use any 2006 capital loss to decrease your taxes as long as you've realized at least an equal amount in capital gains. Let's say you bought a stock for $100 last year and it was only worth $90 when you sold it at the end of the year. That's a capital loss of $10.
  TIP: "Quite often people don't keep track of their losses," says Wallis. "Declare them on your tax return each year and you can carry them forward indefinitely until you need them."
  
  
• Sign the kids up for fitness
  The Children's Fitness Tax Credit kicks in for the 2007 tax season for children under the age of 16, so save any receipts for your child's ballet, swimming or other physical activity programs.
  TIP: The $500 tax credit will help compensate for those early morning hockey practices.
  
  
• Invest wisely to avoid taxes
  If you've invested both inside and outside an RRSP, you can arrange your portfolio to be tax-smart. Capital gains enjoy tax breaks -- they're subject to tax at only half the rate of ordinary income -- while interest payments from bonds and GICs don't enjoy any tax breaks.
  TIP: As a rough rule of thumb, it makes sense to keep bonds and GICs sheltered in an RRSP.
  
  
• Appoint the lower-income-earning spouse as the investor
  If you and your spouse are both earning income, but one is in a much higher tax bracket, it's a smart
  move for the higher-income spouse to pay all or most of the family expenses while the lower-income spouse invests all or most of his or her savings.
  TIP: You'll significantly improve your investment returns since the income generated will be taxed at a lower rate
  
  
• Transfer unused tax credits to your spouse
  Certain non-refundable tax credits can be transferred to a spouse if the spouse originally eligible for that credit is not taxable or the credits have reduced the amount of tax to zero. By transferring the unused portion of the non-refundable tax credits for the age amount, pension income amount, disability amount and/or tuition/education amounts to a spouse, you can ensure you are taking full advantage of these credits.
  
  
• Have the lower income spouse claim medical expenses
  Not only is it better to have one spouse claim all the medical expenses, but it is usually in your best interest to claim the medical expense under the spouse with the lower net income (provided they are in a taxable position). The current ruling is that you can claim the portion that exceeds the lesser of $1,614 or 3% of the individual's net income.
  
  
• Claim all charitable donations with one spouse
  The credit for charitable donations is a two-tiered federal credit of 16% on the first $200 and 29% on the balance (plus provincial credits). Spouses are allowed to claim the other's donations and to carry forward donations for up to five years. By carrying forward donations and then having them all claimed by one spouse, the first $200 threshold with the lower credit is only applied once.
  
  
• Always file your tax return on time, or better yet, early!
  
  
• File a tax return even if you don't have taxable income
  
  
• Pay yourself first

• Take advantage of the Pension Income Credit by having at least $1,000 of pension income for you and
  your spouse. If one of you doesn't have a pension, buy a life annuity or open a RRIF. The income
  qualifies for the credit.
  
  
• If you don't need the money, base the minimum required payment from your RRIF on your spouse's age if
  he or she is younger. Minimums rise as you get older. The less you need to take from your RRIF every
  year, the less tax you'll pay and the more your investments will continue to grow.
  
  
• The Old Age Security pension. It's taxable, just like your other sources of income, and the government
  will claw it back if you make over a certain amount. There are strategies available that may allow you
  to reduce your income, reducing the chance of being in the claw-back range.
  
  
• Don't take your CPP/QPP payment until you need it. You can collect your CPP/QPP at age 65 or as early
  as age 60; or defer your payments to as late as age 70. If you don't really need the income, having a
  payment early on will reduce your benefit in later years when you may need it more.
  
  
• If you and your spouse are at least 60 years old you may consider sharing the CPP/QPP pension with each other. The pension earned during your marriage can be split equally, allowing you to take advantage of income splitting in retirement. This means a portion of the pension income may be transferred from the high income spouse to the low income spouse.
  
  
• Choose your non-registered investments wisely. Interest income and foreign income are taxed at your regular tax rate. Dividend income has an applicable dividend tax credit. Capital gains have the most preferential tax treatment.
  
  
• Draw income from your non-registered investments before registered. This keeps more of your registered money in a tax-deferred status. Another solution may be to take income from both to keep a moderate tax
  situation.
  
  
• Buy life insurance to cover taxes and other costs after you die.

• Examine your Company benefits.  Plan for the tax consequences of stock option, deferred compensation and restricted stock. If these are paid during the first year of retirement your taxes can be significant. Spreading them out over a number of years may leave you with less tax to pay.
  
  
• Take only what you need from RRIFs and LIFs, remembering that there is a required minimum you must take. Income tax is only payable on the money you withdraw. The longer you leave it in, the more time it has to grow tax-free.
  
  
• Leave the first withdrawal from your RRIF until the end of the year after you convert from your RRSP. This also gives it more time to grow tax-free.
  
  
• Take a look at your Estate planning -- wills, trusts and powers of attorney assignments to make sure everything still works for you when you're retired.  Make sure you've named a beneficiary wherever possible.
  
  
• Examine Probate fees.  Make sure that all your life insurance and tax-sheltered plans have a designated beneficiary.
  
  
• Life insurance death benefits are not subject to tax unless the estate is designated as the beneficiary.
  
• Assets in a tax-sheltered plan can go to a surviving spouse and sometimes to a dependent child or grandchild without them paying tax.
  
• Use alternate ways to transfer property to your children or grandchildren: Gift your property during your lifetime. Cash gifts are not usually subject to taxation. Coin collections, stocks, property etc may have income tax consequences.
  
• Buy a life insurance policy to cover capital gains taxes on vacation properties or to cover other taxes
  that might arise.

  These tips have been compiled from various sources including Yahoo Finance, Canadian Living, Canadian Moneysaver, TaxTips.ca, Canadian Business, Moneysense and Clarica among others. These are a general in nature. Consult your tax advisor about your own tax situation.