Harold is a good friend of mine, and is more than just a little frugal.
He’ll reuse his dental floss to save money. He’ll take his family of four to an all-you-can-eat buffet and pay for two plates. “Two people can eat off one plate just fine,” he says.
“And Tim, why in the world would you pay for a car wash when you can wash your entire car with the window squeegee you’ll find by the gas pump at any gas station?
“I’ve saved myself hundreds over the years.”
Harold has been driving his family crazy for years. I finally persuaded him to loosen the purse strings a little if he could save enough tax dollars to justify buying more dental floss, and even paying for car washes.
So, we talked about a few ideas for families to create tax savings this year or next.
1. Structure your affairs for income splitting
Arrange for income to be taxed in a lower-income family member’s hands. How? Consider lending money to a lower-income family member to invest. To avoid attribution of income back to you, charge the current prescribed rate (just 1 per cent; this rate can be set indefinitely on a loan made before year-end). Also, consider giving money to a family member to contribute to a tax-free savings account. There will be no taxable income in the TFSA, so no income will be attributed back to you.
2. Contribute to an RESP
If you’re contributing to a registered education savings plan for a child and want to maximize the Canada Education Savings Grants available (up to $7,200 in CESGs can be paid into the plan for each beneficiary), consider contributing annually to an RESP.
Make that contribution before year-end, and ensure you receive provincial grants to the RESP if you live in Alberta or Quebec (and Saskatchewan beginning in 2013).
3. Invest government benefits in your child’s name
If you receive Universal Child Care Benefits or Canada Child Tax Benefits with respect to your children, consider investing the amounts in the name of your child.
Unlike other amounts given to your child, the income on these amounts can be taxed in your child’s hands without attribution back to you. You may effectively achieve tax-free growth of those dollars.
4. Pay child care expenses before year end
You may be entitled to tax relief for child care expenses paid in 2012, so pay these costs before year end.
When claiming these costs, note that boarding school and camp fees can qualify (up to certain dollar amounts).
And the cost to advertise for or use a placement agency to find a child care provider can also qualify.
5. Pay for fitness and artistic activities before year-end
If you’ve paid fees for eligible fitness or artistic activities for your children you can claim non-refundable tax credits for up to $500 for each of these types of activities (that is, tax credits on up to $1,000 of total fees paid for both fitness and artistic activities).
Pay these fees before year-end to ensure tax credits in 2012.
6. Make contributions to a spousal RRSP
If your spouse is expecting low income years in the short term consider using a spousal registered retirement savings plan to top-up your spouse’s income.
You can claim deductions to that spousal RRSP but your spouse will pay the tax on withdrawals to the extent you have not made contributions in the year of the withdrawal or the preceding two years.
Contributing by Dec. 31 will reduce the time the funds must sit in the spousal RRSP before they can be withdrawn and taxed in your spouse’s hands (i.e. a contribution made by Dec. 31, 2012, can be withdrawn as early as Jan. 1, 2015 – two years plus a day; but a contribution made on Jan. 1, 2013 must remain in the plan until Jan. 1, 2016 to avoid tax in your hands).
7. Time your move to save more tax
You’ll generally face tax in the province in which you resided on Dec. 31. So, if you’re in the midst of planning a move to a lower-tax province, consider moving before year-end if possible.
If you’re moving to a higher-tax province, consider delaying your move into the following year.
8. Make a donation of securities
You’ll be entitled to tax relief in 2012 for donations to registered charities made before year-end.
You’ll also save more tax if you donate securities that have appreciated in value rather than the equivalent in cash.Report Typo/Error
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