As each year draws to a choke we t...

As each year draws to a choke we tend to be focused forward holiday planning, not tax planning. And even now December is actually the best time to tax plan. Let's solve therefore, to look at our tax situations this month and make use of the tax planning ideas that are available-before it's too late!

Planning Tips

We all want to abate the amount of tax we pay, and taking advantage of the following opportunities will allow us to do just that:

Contribute to your RRSP

Contributing to your RRSP is the best known way to tax plan. However, don't wait to contribute until the extremity of February 2005, as the earlier you contribute, the more your tax-sheltered retirement income will increase In fact, if possible, consider contributing your maximum 2005 contribution of $16500 in January 2005

Your maximum contribution for 2004 is 18% of your income earned in 2003 up to a maximum of $15500 (If you're a member of a pension plan, you should consider your pension adjustment when making your RRSP contribution.)

If you use 69 in 2004 you must terminate your RRSP no later than December 31 Don't wait until the last minute to plan for the maturing of your RRSP-if you don't regenerate your RRSP by December 31 the abounding fair-market value of your RRSP will be added to your taxable 2004 income. You can transfer your RRSP to an RRIF, obtain an annuity, receive a plain sum, or choose a combination of these options. Assuming you have contribution compass in 2005, you could also make your 2005 contribution before your RRSP matures at the finis of 2004.

Note: The 2005 contribution will be subdue to a 1% penalty by means of month until January 2005; however, with the individual planning, the benefit of this extra contribution will outweigh the small cost

Disbursements before year-end

Certain deductions and credits-including charitable donations, childcare costs interest on loans for investment plans union and professional dues, and professional fees-can and nothing else be claimed if the amount was paid according to December 31.

December instalment

If you have to pay your taxes in instalments and realize that your 2004 income will be significantly lower than in 2003 decrease the amount of your December 15 2004 instalment accordingly.

Defer income

If you're able to forecast your passing from hand to hand year and future income, you might be able to shift your taxable income. For example, if you think your income will be substantially higher in 2005 thereby placing you in a higher tax bracket, you would be well advised to shift taxable income from 2005 to 2004 or procrastinate certain deductions (such as your RRSP deduction) until nearest year in order to minimize your overall tax liability in 2004

Investment selection

Different marks of investment income are taxed differently. For example, dividends are taxed at a more favourable rate than interest income, and solely half of your capital gains amount is included in your taxable income. If the count uponed returns are the same, it might make perception to put your money in investments for which you will earn tax-favoured dividends and capital gains. However, beware of any penalties associated with transferring existing investments.

Tips for Employees

Reduce taxes at source

Although employee have fewer opportunities to shape their tax burden, they are able to restore the taxes deducted at source by means of their employer. This is done on updating your TD1 - 2005 Personal Tax Credits turn back and filing a T1213 - demand to Reduce Tax Deductions at Source.

TD1:

Employee fill gone out the TD1 when they begin working for a of recent origin employer and are not required to update the Return

However, changes in your personal situation may increase the personal tax credits for which you're eligible. Personal tax credits include: a spouse or common-law partner amount, tuition and education amounts, an age amount for those 65 and older a pension amount for those receiving a regular pension, and unused personal tax credits transferred from your spouse or common-law partner.

T1213:

Employee can use this form to entreaty the reduction of taxes from their pay for tax deductions not related to personal tax credits. These asks commonly relate to RRSP contributions, alimony, profession expenses, interest, or carrying charges upon investment loans and charitable donations. Any income you earn that is not make liable to deduction at source, as it is as interest or rental and self-employment income, will affect your request

Defer stock option benefit

If you exercised stock options in 2004 you can postpone the benefit from exercising options valued at $ 100000 provided you notify your employer by means of January 15, 2005.

Tips for Business Owners

Repay shareholder loans

If you took a loan from your corporation in its 2003 fiscal year, repay the amount before the period of its 2004 fiscal year. Otherwise the cloyed amount of the loan will be added to your taxable income in the year the loan commenc unles the loan was made to purchase a residence, company shares from treasury, or a car for work purposes

Claim the $500000 capital-gains deduction

Small business corporation shares and qualified farm thing owned qualify for the lifetime capital-gains deduction. Note, however, that claiming this deduction oftentimes requires prior planning from your tax advisor, which makes it important to deliberate together with them well in advance of any sale.