Tim Cestnick is managing director at WaterStreet Family Wealth Counsel and author of 101 Tax Secrets for Canadians.
I receive a lot of phone calls and e-mails from readers looking for tax help. A gentleman by the name of Wayne called me this week looking for year-end tax planning ideas. It wasn't the fact that he called me at home that concerned me so much (and my number is unlisted), but the fact that his name is Wayne. It seems, you see, that Wayne has been a popular middle name among a few of the most notorious murderers of our time. Chuck Shepherd, editor of the syndicated news column News of the Weird, has listed on his website no fewer than 225 people in this generation with the middle name Wayne who have been charged with murder. Oddly enough, I had just finished reading that list 10 minutes before I received the call from Wayne - on Halloween, no less.
After sweating through the first two minutes of the call, I learned that Wayne is a friend of a friend, who had legitimate tax questions. I shared with him some year-end tax-planning ideas for families. You might find some savings in this list yourself.
Home renovation tax credit The 2009 federal budget announced a tax credit for eligible home renovations. The list of expenses that qualify for this credit is long, and the renovations can be made to your home, cottage, mobile home or other property that qualifies as your principal residence. The tax credit could put as much as $1,350 back in your pocket when filing your 2009 tax return, and will apply to aggregate costs in excess of $1,000 but under $10,000 that you incur before Feb. 1, 2010. So, if you haven't spent $10,000 on renovations yet, consider topping up your expenditures before Feb. 1. This can be as simple as buying, before that deadline, more paint, lumber or other supplies connected with a renovation. Visit cra.gc.ca and type HRTC in the search field for more information.
Split income with family Shifting income from your hands to the hands of a lower-income family member can save you up to about $16,000 annually (Canada-wide average). One way to do this is to lend money to your spouse or minor child and charge the prescribed rate of interest on that loan. As long as your relative can invest that cash and earn more than the interest rate you're charging, you'll save tax as a family. The prescribed rate for loans set up before Dec. 31, 2009, is just 1 per cent. And that rate can be locked-in for as long as the loan is outstanding. Your family member will have to pay you that 1 per cent interest by Jan. 30 each year (for the prior year interest charge). You'll pay tax on that interest, but your relative can then deduct that interest charge and report any income earned on the portfolio created with the money you lend.
Child fitness tax credit You're entitled to claim a credit for up to $500 per child, to cover costs of enrolling the child in a qualifying fitness program. Make the payments on or before Dec. 31, 2009, to claim the credit on your 2009 tax return.
Plan the timing of a move If you're planning a move to another province in the near future, consider doing it before year-end if the new province has lower tax rates than your current province. You'll face tax in the province in which you reside on Dec. 31 of each year, so making the move before the end of the year could save some tax. On the other hand, if you're moving to a province with a higher tax rate, consider waiting until January to move, to pay tax at the lower rates of your current province.
Move securities out of RRIF If you're required to make withdrawals from your registered retirement income fund in 2009, consider transferring securities that have dropped in value (particularly those you think will appreciate in value again) from your RRIF account to your non-registered investment account. The current value of those securities will count as a withdrawal (which you're required to make anyway) and as those securities appreciate in value in the future, you'll face tax on the future capital gains at lower rates than if you left those securities in the RRIF and made withdrawals of those profits at regular income tax rates later.