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Eight Ways to Save at Tax Time

Don't give away the money that could stay in your pocket

By Emily Senger

March 19, 2019 •

Ron Graham, BCom '79, knows a thing or two about taxes. A chartered accountant who has worked as a fee-for-service financial planner in Edmonton since 1987, he is an expert in personal finance. He hosts financial planning seminars for employer groups, offers counselling sessions to individuals and prepares tax returns.

Graham finds a certain pleasure in helping people accomplish their financial goals. "I do like making sure that the Canada Revenue Agency doesn't get more money from my clients than it should."

With these tips, Graham hopes that we, too, can find pleasure in keeping more money in our pockets.

1: Know the benefits of both an RRSP and a TFSA

If it's early in your career and your income is on the lower side, you're probably confident it will grow. So if you have some cash to tuck away, a tax-free savings account is the way to go. "Put the money into the TFSA today - pay the tax now," says Graham. Then when you move into a higher tax bracket, transfer that money into an RRSP to get a bigger tax deduction. This strategy works for anyone taking a parental leave or considering a career shift that will reduce income this year but will be in a higher tax bracket later.

2: Give generously, claim strategically

Donations of $10 or $20 can add up over a year. "Someone from a charitable organization may come to the door and say, 'Would you like to make a donation?' If you don't get a receipt, you can't claim them on your tax return," says Graham.

Check provincial rules to maximize savings. In Alberta, charitable donations are credited at a 25-per-cent return for the first $200 and a 50-per-cent return for every dollar after that. Consider upping the donation - or, "if you are contributing $100 per year, you could carry forward your donations for up to five years and you get a bigger refund," he adds.

3: Don't miss side-hustle deductions

In today's gig economy, it's common to work multiple contracts - even multiple jobs. If you have self-employment income, set up a dedicated home office so you can claim a portion of your utilities, mortgage interest and home maintenance costs at tax time. To avoid running afoul of the Canada Revenue Agency, Graham says the office must be used exclusively for business and "you have to meet clients in that office from time to time."

4: Get a prescription for claiming health-care costs

There is a minimum threshold to claim health-care expenses: three per cent of your net income, or $2,268, whichever is less. Graham urges his clients to keep track of receipts as well as the cost of premiums for private health and dental plans, such as Blue Cross. The minimum might seem high, but people who are self-employed or retired - with no employer benefits - are more likely to meet it. Not sure what qualifies as a health-care expense? The Canada Revenue Agency has a searchable list.

5: Have a spouse? Share the credits

One spouse's lower income can be a boon at tax time. Contributing to a spousal RRSP gives an immediate tax deduction to the spouse in the higher tax bracket - but when the money comes out later, the taxes are paid by the spouse in the lower bracket. In retirement, pension splitting works much the same way with the high-income spouse sharing a portion of the pension. "Then," says Graham, "the family pays less tax."

6: Get a better return on your return

Your financial game is strong. You've topped up your RRSPs and TFSAs and you still have money to sock away. For those in the enviable position of maxing out sheltered contributions, consider that dividends from Canadian companies and capital gains are taxed at a lower rate than interest or rental income. Those companies have already paid taxes in Canada, explains Graham, "so we don't have to pay the full rate of tax again."

7: Draw soon from the RRSPs

Retirees may be done with work but not with their financial plan. Graham says people need to think about when to start drawing from those retirement funds -and this often means drawing from RRSPs sooner rather than later. Say you retire at age 55 with a pension, at age 60 you get CPP and age 65 you get old-age security. "If you wait until age 71 to draw from your RRSPs, all those incomes may push you into a higher tax bracket," says Graham. Most people can't imagine that possibility in retirement, but it happens - and it can cost you money.

8: Hire a professional and schedule that summer meeting now

Consult an accountant in the summer. That's right, the summer. "It's not that helpful to go into a professional during March and April," says Graham. "At that time, there is very little opportunity for tax planning; it's tax preparation." Meeting in the summer provides the luxury of time to review previous tax returns and talk about what to do differently to save money in the next year and beyond.

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