Myron Knodel, manager of tax and estate planning at Investors Group

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PENSION INCOME SPLIT WITH A LOWER INCOME SPOUSE 

• Certain types of pension income may be reported on a lower income spouse’s tax return, resulting in lower overall tax to the family.
• OAS and CPP don't qualify, but retirement benefits from a registered pension plan or RRIF payments received by those 65 and over may qualify,
• No need to change payment terms of a pension: you can elect to do so on filing return.
• Up to a half of the pension income may be transferred to the lower income spouse's return.

TAX PLANNING SUGGESTIONS ON FILING

• Get the most from your RRSP deduction. You aren't required to deduct your current year's RRSP contribution. If your tax rate is expected to increase in future years, consider carrying the deduction forward to use it when tax recovery is greater.
• Maximize your charitable donation credit by claiming all donations on the return of one spouse. The first $200 of charitable donations are eligible for a federal and provincial tax credit at the lowest marginal rate and to the extent that cumulative donations exceed $200 the tax credit is at higher rates. Charitable donations may be claimed be either spouse regardless of whose name the donation has been receipted to. Combining donations results in the lower credit being applied only once.  Also, if one spouse has taxable income in excess of $202,800 a greater charitable credit will be realized by having this spouse claim it.

TAX-FILING TIPS AND DEDUCTIONS PEOPLE OFTEN FORGET 

• Don’t be late. The filing deadline for 2017 returns is Monday, April 30. If your return is not filed and tax is owing at the deadline, the late-filing penalty will be 5 per cent plus 1 per cent for each additional month late. If you've been late in the last three years, the penalty will be 10 per cent plus 2 per cent for each additional month. If you or your spouse have self-employed income the filing deadline is extended to June 15, but tax is still owing by April 30. Even if you don’t have all your info, file your return on time, use your best estimate and adjust your return at a later date when info is available.
• Ensure you're aware of potential deductions and credits for which you may be entitled:
  • Employment credit: If you received a T4 slip, claim this credit.
  • Public transit credit: Long-term public transit costs incurred prior to July 1, 2017.
  • Homebuyer's credit: If you or your spouse didn't own a home since 2013, but purchased one in 2017 ($750 less tax).
  • Single parents with custody of children under 18  are eligible for a dependent claim.
  • Child care expenses: Don’t forget after-school /noon-hour supervision costs and sports camp costs.
  • Employment expenses (if not reimbursed by employer): Professional dues, automobile expenses, office-in-home costs.


• Students and former students: If you didn't claim your tuition, education and textbook credits in prior years, you may carry forward the unused credits to future years. Don’t forget that student loan interest may be claimed as a credit and some provinces offer tuition rebates.
• Lower income and disabled workers: If 19 or over with employment or self-employed income of approximately $18,000 or less (greater amounts are allowed if married, children or disabled), you may be eligible for the working income tax benefit and working income tax disability supplement. It ould result in an additional refund of up to about $1,000 if employment income is $11,000 or less.
• If you have deductible employment expenses (such as automobile, travel and supplies membership) and your employer is a GST/HST registrant (other than a bank), you can get a refund of the GST/HST you paid on these expenses.
• Relatives who are unable to utilize their personal tax credits due to low income and who are dependent on you for support may be able to transfer their unused tax credits to you. Examples are students in post-secondary education and parents or adult children who are eligible for the disability credit.
• If your home is the main location where you work or if you see clients/customers/patients in your home on a regular basis, you may be able to deduct a portion of the costs you incur in maintaining your home. 
• If you or a dependant are disabled or 65 or over and have incurred home renovation costs to improve mobility within the home, you may be entitled to claim a federal tax credit on the first $10,000 of costs ($1,500 less tax).

RESTRUCTURE YOUR BORROWINGS TO GAIN INTEREST DEDUCTIBILITY

Structuring your personal debt in such a manner that the interest is deductible is an effective long-term tax planning strategy. In order for interest to be deductible, the borrowed funds must be used to earn investment or business income. Security pledged for the borrowed funds is not a factor when determining interest deductibility. An example where non-deductible interest could be converted to deductible would occur if a person had non-registered investments and wanted to purchase a new home, needing to obtain a mortgage. If the home is purchased from the mortgage funds, the interest wouldn't be deductible. But if the non-registered investments are first liquidated and used to purchase (or partially purchase) the home, and if the mortgage funds are used to purchase non-registered investments (same investments or different), the interest on the mortgage will be deductible to the extent to which the mortgage funds were used to purchase the non-registered investments. Business owners can obtain the same result by using borrowed funds to pay business expenses while using the revenues from the business to more rapidly pay down debt whereby interest isn't deductible.

SAVE THE LOWER INCOME SPOUSE MONEY AND SPEND THE HIGHER INCOME SPOUSE'S

Investment income realized by a couple is taxed to the spouse who sourced the income and not necessarily in the name of the spouse that owns the investment. For example, if spouse A has a source of income and spouse B has none, the interest income realized from the income saved is taxed to spouse A even if ownership of the investment is in the name of spouse B or in joint names. Therefore, in situations where one spouse has lower income, it's prudent to save and invest the lower income spouse’s income and or inheritance, so that the resulting investment income will be taxed to the lower spouse. The investment itself may be registered in either spouse name or in joint names. 

REMINDER TO U.S. CITIZENS AND GREEN CARD HOLDERS

U.S. persons who are living in Canada should be aware that the IRS is undertaking a major program to ensure they're complying with U.S. filing requirements. Unlike Canada and many other countries, the U.S. requires its citizens (and in some cases children of U.S. citizens), green card holders and those who have a substantial presence in the U.S. to file U.S. tax returns reporting worldwide income. Canadian financial institutions were required to report to the IRS information on investments held by U.S. citizens, which will presumably alert the IRS of those required to file returns. 

WEBSITE: investorsgroup.com