Tax tips for ’09

Business owners with their own in-house accounting managers and individual tax filers alike have the opportunity this month, and throughout the year, to double-check and make sure they’ve made use of all available credits and strategies at their disposal.

See also: • Small business death and taxes • Tax brackets, figures and details for your practice (the 2009 edition)

Experts at Ernst & Young, and CIBC’s Jamie Golombek are both involved in the client education effort, putting out checklists that clients and professionals can use to maximize returns this year and next.

Ernst & Young experts point out that kids, new homes and capital losses are all good opportunities to save money when filing tax returns. On its list of tips, the firm suggests double-checking the following areas to get the most out of this year’s session with Canada Revenue:

1. Turn losses into gains. Net capital losses for 2008 can be carried back three years and applied to net gains in 2005, 2006 and 2007. Business investment losses can be claimed against any income earned during the year.

2. Up to 50% of eligible pension income received in 2008 can be reported on a spouse or common-law partner’s tax return.

3. Know the new registered retirement income fund rules. New tax rules allow minimum RRIF withdrawals for 2008 to be reduced by 25% to give portfolios a chance to recover some value as markets stabilize.

4. Collect federal tax credits for charitable donations made during the year and decide if you should accumulate donations made over a few years to claim at once for the higher-rate credit.

5. Claim the whole family’s medical expenses in the lower-income spouse’s return. The individual who is making the claim should have sufficient income to absorb the entire credit. Dependent relatives’ expenses can also sometimes be included.

6. Look into collecting other family-related credits — child tax credits for children under 18, adoption expenses and the child fitness credit are all available for those eligible.

7. If self-employed, clients can claim a number of business-related expenses from a long list of possibilities, including car and parking, business association fees, convention costs, home office expenses and salaries paid to assistants including family members.

8. Check your files — twice. Some old receipts may still have value, especially those for charitable donations and medical expenses.

9. If you moved in 2008 to start a new job, business or post-secondary education, you may be able to claim certain expenses, including the cost of moving, travel, meals and lodging while en route.

10. File tax returns for children who had part-time jobs or have been paid for various small jobs (lawn care, babysitting) to collect certain credits (GST, for example) and to establish room for future RRSP contributions.

11. Check your prior year return and Notice of Assessment to see if you have any carry-forward balances that may be used as deductions or credits for 2008.

12. Go high tech. Using income-tax software to prepare your tax return is generally quicker, easier and less open to mechanical errors. If clients are planning to file electronically, remind them to keep their receipts.

At CIBC, Jamie Golombek, managing director of tax and estate planning, points out “changes to the tax rules each year make it important to double-check what new saving opportunities you may be eligible for. Each individual’s situation is different, (but) there are some tax-effective strategies everyone should consider using.”

Golombek’s recommendations include tips for making the most of tax returns being prepared right now for 2008, and tips for those interested in making the most out of their 2009 returns as well.

Tips for 2008 tax returns

1. File on time. Most individuals have until April 30, while self-employed business owners and their spouses or partners have until June 15. Those owing tax must pay their balances by April 30 to avoid paying a 5% penalty on unpaid balances and an additional 1% each month thereafter, to a maximum of 12%.

2. Report all capital losses, even if you can’t use them in 2008 — these can be carried back three years or carried forward indefinitely.

3. Claim charitable donations. Consider pooling all donation receipts in one spouse or partner’s return to take advantage of higher credit rates.

4. Split pension income with a lower-income spouse to benefit from lower income tax rates. It can also be possible to preserve some or all of the age credit and avoid Old Age Security benefit clawbacks.

5. File tax returns for minors to begin establishing RRSP contribution room for use in future years.

Tips for 2009

1. Avoid getting a refund. Form T1213 will enable employers to reduce the amount of tax withheld at source — large refunds mean you have loaned your own money to the government, interest-free.

2. Consider renovating your home — in 2009 only, a new 15%, non-refundable tax credit, the Home Renovation Tax Credit (HRTC) is available for renovations “of an enduring nature,” made before February 1, 2010, which cost between $1,000 and $10,000.

3. Contribute to registered savings plans — RRSP, RESP, TFSA and RDSP all offer unique benefits and tax-savings opportunities.

4. Convert non-deductible debt to deductible debt. Make your interest expense tax-deductible by paying off non-deductible debt with non registered funds, then borrowing back for investment purposes.

5. Examine spousal loan strategies. Income splitting via a spousal loan lets a spouse loan funds at the prescribed interest rate, which drops to an all-time low of 1% on April 1.

(04/08/09)