Refund signals need for tax planning

Last year, Canada Customs and Revenue processed over 23.3 million individual tax returns, and refunded over 15.7 billion dollars to Canadians. That’s almost two billion dollars more than the year before, according to a recent CCR Agency report.  

Canadians should be asking why so much in refunds? That’s 15.7 billion dollars not being used by the average person to buy food, clothing and shelter.  Nor is it earning investment income for Canadian families, or contributing to education funds.  Why are we collectively prepaying so much tax?

Perhaps it’s because most Canadians think of taxes only when the filing deadline is looming, rather than taking control and planning to pay less all year long. 

If you are expecting a tax refund this year, you should know that you are giving the government an interest-free loan for most of the year. This is probably not necessary. 

What to do
For example, employees with age and earned-income eligibility could be ‘paying themselves first’ every pay period by contributing potential tax refund dollars ttheir tax-sheltered retirement savings plans.  That’s because CCRA allows your employer to make that RRSP contribution on a before-tax basis, with direct contributions into your RRSP. 

All that’s required is that you obtain a Letter of Authority from CCRA to give your employer permission to stop withholding tax on the funds that will be deposited into an RRSP.  You-instead of the government-will get the benefit of your tax refund with every paycheque. 

To do so:

  • Send a letter outlining why you want less tax deducted to the Client Services Division of any tax services office
  • Or complete Form T1213. 
Your employer will receive a Letter of Authority from CCRA reducing the amount of tax required to be withheld from your paycheques.

Seniors and others on higher fixed incomes should recalculate their installment payment requirements immediately, particularly because we are expecting tax decreases for most in the year 2001. Invest the money instead. Or buy that special treat you thought you couldn’t afford. 

To make sure you only pay the correct amount of tax and not one penny more:

  • Consult Form T1033 to make your installment payment calculations under one of three different methods available to you.

New tax savers
Many Canadians are unaware of the fact they could qualify for thousands of dollars of enhanced tax credits, thanks to recent federal budgets. Included for the year 2000 are the following tax savers. Check your tax return for them:

  • Age Amount for seniors enhanced by a higher clawback level of $26,284
  • Increased Disability Amount, particularly for those with disabled children
  • New qualifying medical expenses
  • Increased political contribution credits on the first $200 given.

There are also new deduction provisions for childcare, attendant care, and auto expenses in the year 2000. 

Offset capital gains
But the biggest opportunities for real tax savings comes to those who focus on family tax planning all year long and over a period of time.  For example:

  • If you lost money on the stock market in 2000, you’ll be able to first offset other capital gains of the year. 
  • If you had none, or still have left over losses, you can carry these back to capital gains realized in the previous three years and recover past taxes paid on those gains. 
  • If there are no gains in those previous years, or you expect large gains in 2001, you can carry your capital losses forward. 

But be careful. Calculating your capital gains inclusion rate is tricky in the Year 2000. There are three different rates, depending on when you disposed of the assets. You may wish to consult with your tax and financial advisors to check these tax savers out.

This year, resolve to keep more of your hard-earned money in your own pocket, throughout the year, not just at tax time. Aim for a zero refund/balance due result on your next tax return.

Evelyn Jacks, Contributing Editor of Fifty-Plus.net, is one of Canada’s leading authors and educational publishers in the tax and financial planning fields. She is founder and president of The Jacks Institute, and National Director of Education for CCH Canadian Ltd., organizations that are leaders in training Canada’s tax professionals.