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Filed your taxes? Take these steps to save you from headaches next year (Thinkstock)

Filed your taxes? Take these steps to save you from headaches next year

(Thinkstock)

TAX MATTERS

Where are you on the tax-smart scale? Add to ...

A while back I was driving through Oakville, Ont., where I grew up, and I learned something about discouragement. I saw some kids playing baseball at a park where I used to play, so I stopped to watch.

“What’s the score?” I asked a little boy on the bench.

“Fourteen-nothing!” he exclaimed, with a big smile on his face.

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“That’s great!” I said, “Looks like you’re going to walk away with this game!”

The boy then looked at me and said, “No sir. We’re losing 14-nothing!” From all the smiling and cheering you wouldn’t know his team was down for the count.

“You’re losing? Then why aren’t you more discouraged?” I asked.

“Discouraged?” the boy replied. “Why should we be discouraged? We haven’t even been up to bat yet!”

Many Canadians are discouraged about the taxes they paid when filing this year, but, if the truth be known, most haven’t stepped up to the plate yet. Most aren’t even in the tax game yet – that is, most have done little or nothing to save tax.

After filing your 2013 tax return, consider the following ideas to set yourself up for tax savings going forward:

1. Review your return and make changes.
Take a look at the following lines on your tax return to take stock of where you are on the tax-smart scale:

Line 121: Did you report meaningful interest or other income here? If so, consider rebalancing your portfolio so that your interest-bearing investments are inside your registered retirement savings plan (RRSP), registered retirement income fund (RRIF) or tax-free savings account (TFSA). To the extent you own investments outside these plans, you’d be better off holding equities for capital growth, subject to the right level of risk appropriate for you.

Line 114: If you and your spouse reported Canada Pension Plan income on Line 114, consider splitting your CPP benefits. You can add your CPP benefits together with your spouse’s and each claim 50 per cent of the total. This will save tax overall if you’re in a different tax bracket than your spouse. Contact Employment and Social Development Canada to set this up.

Line 115: If you reported pension income on Line 115 that entitles you to a pension tax credit (line 314 on Schedule 1), and if you have a spouse, consider whether you should have reported up to one half of your pension income on your spouse’s tax return (you would have claimed a deduction on Line 210 in this case; this splitting of income could have saved you tax).

Line 162 or 164: If you had no numbers on Line 162 or 164, you’re missing a chance to save tax. Any type of part-time self-employment will allow you to deduct costs you’re paying for anyway, including home and vehicle costs. Consider starting a home-based business in May.

2. Request an adjustment.
If you realize, after filing your return, that you forgot a deduction, missed a slip, or made another mistake, you can correct the problem by filing a T1 Adjustment Request (Form T1-ADJ). This could save you tax, or allow you to avoid headaches and potentially future penalties when the Canada Revenue Agency (CRA) notices that you failed to file a slip. Get a copy of Form T1-ADJ online at cra.gc.ca.

3. File a Notice of Objection.
You should receive your Notice of Assessment (NOA) from the CRA, shortly after filing your return. The taxman might make changes to your return, which will show up on the NOA. If you disagree with any changes, give the CRA a call to resolve the issue by phone. If that fails, consider filing a Notice of Objection (Form T400A). The deadline can be as soon as 90 days following the date on your NOA – so act fast. The objection should set out the facts, your reasons for objecting, and what you’d like the CRA to do about it. From my experience, most people give lame reasons for objecting. My advice? Get a tax pro involved to build an argument that you’re right and the CRA is wrong.

4. Reduce your source deductions.
If your 2013 tax return shows a big refund, consider filing Form T1213 in May to request a reduction in the taxes deducted from your pay. You’ll effectively get your refund earlier in the form of increased take-home pay.

Tim Cestnick is president of WaterStreet Family Offices and the author of several tax and personal finance books.

 

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