Tax Tips

In addition to the advice and guidance provided throughout the Tax Basics section, there are some other general considerations to keep in mind regarding taxes. The following sections outline some of those issues.

Tax Planning Considerations

  • Review eligibility for tax deductions/credits.
  • Review the tax efficiency of registered accounts/plans (such as employer pension, RRSP).
  • Consider a TFSA for mid-term and long-term saving and investing after RRSP contributions are maximized or if you are in a low marginal tax bracket.
  • Low capacity to save beyond the short-term? Use a TFSA to double as an emergency fund.
  • Consider an RESP for education funding.
  • Reduce all interest expenses that are not tax-deductible such as interest on consumer loans and mortgages.
  • Investigate investments with favoured tax treatment but within an acceptable level of risk.
  • Keep necessary receipts as back-up for tax credits/deductions.

Tax Planning Using a Combined Federal-Provincial Tax Rate Table

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Tax Planning for Couples

  • If married (or common law) prepare tax returns together.
  • Transfer tax credits between spouses.
  • Use the current tax year's general income tax returns, forms and schedules
  • Focus on income splitting.
  • Invest your tax savings.
  • Reduce net income to increase tax credits.
  • Identify tax savers.
  • Recapture previously overpaid taxes.
  • Use carry-forward opportunities.
  • Optimize use of RRSPs and TFSAs:
    • Assess which is better: to contribute to your RRSP, your spouse’s, a spousal RRSP or to make no contribution.
    • Assess whether to contribute to a TFSA.
  • Prioritize your long-term savings:
    • RRSP contributions up to the maximum if you are in a high marginal tax bracket, with the expectation that you will withdraw money when you are in a lower tax bracket.
    • TFSA contributions up to the maximum.
    • Non-registered investments, once you have maximized use of RRSPs and TFSAs.
  • Couples should prioritize their savings in the following order:
    1. Maximize higher-income spouse’s RRSP contributions (into a spousal plan as needed).
    2. Maximize contributions to TFSAs for both spouses.
    3. Maximize lower-income spouse’s RRSP contributions (if tax rate warrants).
    4. Non-registered investing in lower-income spouse’s name (up to lower-income spouse’s annual income or through spousal loans).
    5. Non-registered investing in higher-income spouse’s name.
  • Buy RRSPs in the name of the spouse who will have the lower level of income during retirement.

Tips for Tax Efficiency

  • Annually review and apply for all deductions and credits available to you.
  • Use attribution rules to your advantage.
  • Buy RESPs and RRSPs for your children.
  • Take advantage of TFSAs to income split between adult family members.
  • Loan money to family members for investments.
  • Gifts are tax-free (don’t forget the spousal contribution rules).
  • Maximize unused RRSP contributions.