By Anne Chun, C.A., CFP
March and April are the months in the year when all sorts of tax slips are arriving the mail, and the income tax filing deadline of April 30th begins to weigh on us all. I sometimes get anxious phone calls from clients who want to file their income tax returns as soon as possible.
From a tax preparation perspective, we concentrate on the tax slips that clients provide for their return that is to be filed. From a tax planning perspective, I advise clients to consider their current tax situation at the beginning of each year rather than wait until tax time. It’s never too late to start planning now.
In the eyes of the Canada Revenue Agency, a dollar is not a dollar. This is because each dollar is not taxed the same way. Tax Planning is important to ensure you legally minimize your income tax and have more left over.
In my book, ‘Planning Your Financial Future’, I suggested that if you review and change the types of income you receive, you may be able to reduce your taxes.
For instance, if you are paid on commission rather than salary, there are expenses that you can deduct for tax purposes that a person who earns salary income cannot. This includes expenses for your automobile such as gasoline, repairs, maintenance, insurance, parking, car loan interest/lease payments, and a portion of the cost of your car in the form of depreciation, and possibly part of the expenses of your home. So if you can negotiate your remuneration to be at least partly commission based, you can save taxes.
Another tax planning recommendation, that is of special interest to retired persons and others who have investments, is that you should review the TYPE of investment income you are receiving. They are NOT taxed at the same tax rate. You should focus on the “after tax” rate of return giving consideration to your risk tolerance and investment time horizon.
Most of our clients are too busy to monitor their investments all the time. When they file their income tax returns, I take this opportunity to review their taxes and investment mix with them, you should consider doing the same with your accountant or financial advisor.