22 of the Best Tax Tips for Individuals

Individuals

  1. RRSP - you should not pass up this great interest-free loan from CRA. RRSP limits are 18% of prior year earned income less any PA (Pension Adjustment) or PSPA (Past Service Pension Adjustment), to a maximum of $24,270 in 2014 and $23,820 in 2013.
  2. Over-contribute to your RRSP - you can over-contribute up to $2,000 to your RRSP without penalty. The earnings on this over-contribution will accumulate tax-free, and it can be deducted in future years. However, if the excess contribution exceeds $2,000, a penalty of 1% per month applies.
  3. Contribute early to your RRSP - you would be wise to contribute as early as possible to your RRSP. The result can be a 10% increase in the final value of your plan.
  4. RRSP Administration fee - the administration fee on a self-directed RRSP is not deductible. Accordingly you should have the fee deducted directly from the plan.
  5. RRSP loans not deductible - where possible, structure loans so that the interest is deductible. I.e. use savings for personal items, and borrow for investment or business purposes.
  6. Allowable business investment loss - should you dispose of shares or debt issued by a small business corporation (SBC) at a loss, the resulting allowable business investment loss may be offset against income from all sources.
  7. Any home can be principal residence - a home in another country can qualify as a principal residence if you occupy that home on a seasonal basis and are a Canadian resident in that year, so the gain on the sale of that home will not be subject to capital gains. You are entitled to one principal residence each year.
  8. Medical expenses any 12 months - carefully select the 12-month period for medical expenses deductible in the current year. Keep any current year receipts not claimed in the current year for next year.
  9. Pension income credit - if you are age 65 or over, be sure to take advantage of the pension income credit by converting a portion of your RRSP to a retirement income stream that will provide you with at least $2,000 of eligible pension income.
  10. Quarterly installments- monitor your quarterly income tax installments. If you estimate that your current year liability will be less than the previous year due to higher RRSP contributions, interest expenses, etc., you should consider reducing later installments.

Families

  1. Medical Expenses - one spouse should claim all medical expenses.
  2. Charitable Donations - one spouse should claim all charitable donations for the family if the total exceeds $200. Caution – only contributions to a few foreign charities are deductible; see the CRA web site under the heading Charities and Giving > Qualified Donees > Other Qualified Donee Listings.
  3. Political donations - should be split between two spouses if both have taxable incomes to maximize credits.
  4. Equivalent to Married - if you are a single or separated parent, claim the “equivalent to married” tax credit for supporting a child or person related by blood, marriage or adoption.
  5. Numerous deductions, tax credits, tax-free income are available - tuition fee or education tax credit, RDSP (registered disability savings plan), children’s fitness and arts tax credit, TFSA (tax-free savings account), public transit tax credit and there are more.
  6. Spouse’s dividends - check to determine the benefits of transferring your spouse’s Canadian dividends to your tax return – the savings could amount to several hundred dollars.
  7. Charitable donations, use unrealized gains - if you have an unrealized capital gain on a security and you plan to make a charitable donation, you can donate the security. You will not have to pay tax on the capital gains.
  8. Split CPP - split CPP benefits between you and your spouse to gain the benefit of some income splitting and perhaps to mitigate the claw back of Old Age Security benefits received.
  9. Split pensions - split pension benefits with your spouse.
  10. Will to your spouse - ensure that your spouse is the beneficiary of your RRSP and heir to your vacation property so that income and capital gains taxes can be deferred until the later of your or your spouse’s death.

Entrepreneurs & Managers

  1. Reasonable salaries to family members based on work they do - you may pay a reasonable salary to your spouse and/or children working in your business. Besides saving tax by splitting income with lower-marginal-rate family members, this will entitle them to make RRSP and CPP contributions.
  2. $750,000 capital gains exemption ($800,000 in 2014 and indexed thereafter) - consider using the $750,000 capital gains exemption by selling shares to your spouse where your small business corporation has substantial accrued capital gains. However, it is necessary to consider alternative minimum tax and other factors.