Written By: John Klotz
As we stare down the last few days of 2002, it’s time to consider some helpful YEAR END TAX PLANNING techniques. So here are a few simple tax planning points to consider (preferable when your not inebriated with rum laced egg nog!).
Your medical expenses and those of your spouse/partner and of your dependants may be claimed for any 12-month period ending in the taxation year and may be claimed by you or your spouse/partner. To qualify as eligible medical expenses, payments must be for approved treatments by recognized medical practitioners (such as doctors, nurses, dentists, chiropractors, naturopathic doctors, physiotherapists, psychologists or dietitians), private hospitals, attendants or private health insurance premiums. To get the most tax savings, medical expenses for the whole family should be claimed by the lower income spouse.
Donations made to registered charities, registered Canadian amateur athletic associations, Canadian municipalities, the federal government or a provincial government are eligible for a tax credit that reduces the taxes you must pay.
In order to qualify for tax credits, charitable donations must be made and receipts dated by December 31st. To maximize tax credits, consider having one spouse claim all donation receipts. Remember that charitable donations may be carried forward for up to five years. This strategy may allow more of the donations to earn a higher credit.
Education and tuition credits are transferable within certain limits. If you have a son or daughter in post-secondary school, and they have no income, parents are permitted to claim a maximum of $800 in federal tax credits per child. In addition, the cost of academic and training courses, application and admission fees, athletic fees and library and laboratory privileges may also be claimed. The school will send a tax receipt for these fees on a Form T2202.
Fees That Are Tax Deductible
Interest paid to earn investment income may be deducted. If a loan is procured to purchase shares or mutual funds, the interest is deductible (this does not apply to RSP loans). Other fees that may be deductible include the cost of renting a safety deposit box, management and safe custody and related accounting and bookkeeping fees. This does not include commissions charged by brokers or financial planners. Income tax regulations stipulate that only fees paid to a professional investment counselor for managing or for giving advice on purchasing investments may be deducted. While investment counsel fees are deductible, the yearly administration fee for self-administered registered plans is not tax deductible.
Capital Gains and Capital Losses
As the end of the year approaches, it is time to review non-registered investment portfolios and the performance of these holdings. If you have been the recipient of capital gains either from stocks, bonds, mutual funds or real estate, you will have to pay tax on those gains, assuming they were held as capital property. Capital losses can be used to offset capital gains and can be claimed for the previous three years or carried forward indefinitely. Be aware that if you are planning to sell any securities before year-end, the last trading day for settlement in the year is three business days before the year-end. This year the last trading day is December 24th, 2002.
While the idea of tax planning may seem like a long way away today, these tips can help you make that April 30th deadline go more smoothly.
This article was compiled by John Klotz. John is President of Northwood Mortgage Life. You can reach John at firstname.lastname@example.org or call 416-969-8130 ext. 230