FROM TAXES TO TIPS

April is traditionally the month to concentrate on getting your tax returns filed.  If you are getting money back, you may then focus your attention on what to spend your refund on.  If you owe money, you may want a new accountant (just joking….it is rarely the fault of the accountant you know).

However, your tax return is a great time to sit down with your accountant or financial planner to consider what financial planning tips might be available to you.  I’ve listed a few tips that come out of tax return season that have added value to many of my clients:

What income splitting techniques are available to me?

Are there basic strategies to split income between you, your spouse and your children to maximize the amount of money you have to spend?  These strategies include splitting of certain pension income sources, using spousal loans to transfer investment income to a lower income spouse, or paying reasonable administration fees to your family.  For families with their own private companies, further tax planning can lead to significant values in income splitting, such as creation of family trusts or other speciality trusts  or products.

Are you deducting interest income on your return?

If you are, what rate are you paying and is this a good time to consider a refinancing of your debt to reduce your go-forward costs.  If you are not deducting interest expenses, but you have a mortgage or debt, can you take steps to convert your non-deductible interest into deductible interest?  Yes you can, and your accountant or financial planner can tell you the steps to accomplish this.

Does your tax return have taxable interest income? 

If so, consider whether you can own that investment inside a Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP), where the interest income can be earned on a tax-free or tax-deferred basis.  I generally then find that people have room to own these investments in a TFSA or RRSP, but have simply not gone through the steps to own the investments therein.  Or, I have noticed that there are investments in their TFSA or RRSP that would earn tax preferred sources of income (e.g. Canadian dividends or capital gains), such as Canadian stocks or certain type of mutual funds, but these benefits are lost because of where these investments are owned.  In this latter case, we may be able to arrange a “swap” of investments to improve your overall tax picture.

Are you happy with your investment mix? 

This serves as another opportunity to ask whether you are happy with your current mix of investments held in your various accounts.  We invest in a certain mix of stocks, mutual funds and fixed income investments at a point in time in the past, based on how we were and felt at that time.  However, with the passing of time, we may have changed circumstances or plans that impact what we should invest in on a go-forward basis.  Tax return season is another opportunity to reassess your investment mix.

You may also identify opportunities to put your investments to work in other vehicles.  For example, if you have children under the age of 18 you should consider your RESP contributions to maximize available grants.  If you have good health, you may wish to consider investing through insurance to earn tax-free returns on your contributions while covering off your insurance needs.

What is your estate plan for your non-registered investments?

Some clients start accumulating a non-registered investment portfolio, but they don’t think about the “what-if” situation and what would happen to these investments if they were to pass away.  Unlike a TFSA or RRSP, you generally do not have the ability to name the investment account to a beneficiaries if you were to decease.  There are simple strategies to address this “what-if” situation, but you first have to identify them.

This is just a snap-shot of some of the tips that can come out of a tax return.  Make sure you are working with someone who can give you the value-add of financial tips while they finalize your income tax!

Need more information.  Call me at 604.789.3888 or at marco.faccone@canadafinancial.ca.