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Tax Saving Strategies - DOC

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					Money Cents April 2005


Tax Saving Strategies

Over the next month, many people will be reviewing and preparing their income tax
return. Some people will get a refund and many will get a bill for additional income tax
payable. Many Canadians feel that if they receive a refund, they have done a good job
and minimized their taxes. A point for your consideration; a refund is great, a more
substantial refund is better.

The three main rules of tax planning are to Defer, Deduct and Divide.

Defer: Interest income can be an area of concern. If you have money outside an RSP,
the interest earned is fully taxable. In a middle tax bracket, this could mean that if you
earn $1000.00 in interest, $400 will be payable to CRA on an annual basis. There are
several ways to reduce this tax bill, such as investments that pay a dividend or earn
money through capital appreciation. The tax payable on Capital Gains can be deferred
until the investment is sold at a later date in the future.

Deduct: Many Canadians have a tax plan in place. Some plans are better than others.
One common tax plan is to have CRA (Canada Revenue Agency, formerly known as
Revenue Canada) withhold additional income tax from your salary. Often, this will result
in a refund of income tax the following year. In other words, CRA will give you your
own money back with no interest paid. A better plan would include a bi-weekly
deduction to a Canadian Saving Bond or a high interest savings account. Alternatively,
you could have purchased a Registered Savings Plan or RSP. The RSP will reduce your
taxable income and this may result in a refund.

Divide: Many tax saving ideas involve planning now, to reduce your tax bill later. A
good example of this is a Spousal RSP. Bill and Judy are married with children. Bill
earns a good living working outside the home and Judy is a stay at home Mom. Bill has a
pension plan and saves into an RSP in his own name. Bill and Judy could utilize a
Spousal RSP, giving Bill the tax break and Judy will have the money growing in her
name. When they retire, they will both have an income. This will help them reduce their
tax bill as all of their income will not be taxed in the hands of Bill.
There are several other ways to reduce your income tax bill. Many are very specific to an
individual’s situation. There are strategies on Charitable Giving, Family Trusts, Estate
and insurance planning. For the average working Canadian, RSP’s are usually the best
and most effective way to save on personal income tax.

Over our lifetime, we will pay a tremendous amount in income tax. As Canadians, we
benefit from this by enjoying a standard of living enviable by many countries. Health
care, education, highways, libraries and so many other services and amenities are the
result of our tax dollars. I believe in paying my fair share, but not overpaying due to poor
planning or lack of interest. As with many other things in life, attention to the small
details will ensure a better financial future.


Emily H. Rae, CFP is a Financial Advisor with Assante Financial Management Ltd. You
can reach her at erae@assante.com or (902)499-9416. Please contact a professional
advisor to discuss your particular circumstances prior to acting on the information above.

				
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