Last minute tax tips

(April 2008) With the country’s tax filing deadline just three weeks away, clients are likely scrambling to get their returns done. To make it easier on them, Ernst & Young has compiled its “top 12 tips” to take on taxes.

The most important change for the 2007 tax season, says Gena Katz, a tax specialist with Ernst & Young in Toronto, surrounds splitting pension income. This is the first time someone can divide her pension earnings with her partner, thereby putting the higher pension earner into a lower tax bracket. “The savings can be really significant,” she says. “It’s a simple thing to do, but it has to be done in the return.”

If it’s done properly, someone making a pension of $70,000 a year can split that number in half with a low-earning spouse, so the two tax returns will claim $35,000 each. That way the couple will pay less tax overall.

Fortunately, if you’re helping clients with their taxes, a simple tick of a box is all that’s needed to garner those savings.

A key tax tip that many Canadians forget is to file returns for their children. While many 12-year-olds aren’t making much money, putting them on CRA’s radar means they can start building RRSP contribution room. “This is a very good thing,” says Katz. “In the future they can make payments. I’m sure a lot of people don’t do this.”

What many clients probably do know a thing or two about is charitable giving, but it’s easy to forget that they have five years to actually claim their donation. This can come in handy if someone wants to either make a big claim one year, or save up enough donations so the tax credit is worth it. Katz points out that the first $200 results in a credit based on the lowest-marginal rate, while anything after is calculated by the highest-marginal rate. She says smaller contributors will only want to use that initial $200 once, so they might wait a year or two to file their donations in order to capitalize on the highest rate.

If your practice is heavy with business owners — especially new entrepreneurs who’ve set up shop in a new office — make sure they claim their moving expenses. The claim works as long as the new location is at least 40 km away from the old one. “These are expenses related to the move,” Katz explains. “If you have to fly from one city to another, those expenses are deductible.”

Claiming moving expenses is no doubt helpful to small business owners, but if your clients are investing in a start-up, they can get some tax relief, too. Ernst & Young says that if someone sunk money into a small corporation that never took off, the investor can claim a loss on the funds on any income, not just on capital gains.

One tip that didn’t make the E&Y’s top 12 but is still important, is the concept of filing on time. “This is particularly true for people who are getting refunds,” she says. Those people aren’t usually in a hurry to file since they know they won’t be asked to pay the government, but if it turns out they made a mistake and they do end up owing money, they’ll be dinged with the late fee.

While clients can do many of these things on their own, a good advisor will make sure the tax return is done correctly. “The advisor has to ask the right questions,” says Katz. “Have you paid for the fitness fees or transit passes? And, beyond that, and even more significant, an advisor looks for what’s not there.”

Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com