Five Useful Tax Planning Strategies
Now that summer has started and the thoughts of personal tax are are well behind us, we wanted to send a reminder to start planning for 2023 – no time like the present to ensure you are planning to minimize your tax burden.
Here are five tax planning ideas that we found very useful in our last tax season as we ensured our clients minimized their tax bill.
EXPENSES - BUSINESS OR PERSONAL? For owner managers, an important tax planning strategy is to consider the expenses that should be reimbursed by the company. We can help you revisit how certain expenses should be reimbursed like rent of office in home, automobile, entertainment, and other costs. To claim costs in a company, they must be incurred and directly related to the income of the business.
THINK AHEAD - Planning on the level of income for each year is important, especially for clients in industries where the income is not consistent from year to year, like our film and television clients. Owner managers especially need to look at the minimization of overall taxes over a period of years to ensure the graduated rates have been taken into account. As an example - it is better to have income each year and leverage personal tax credits and lower marginal rates rather than having no income one year and significant income in another year. Considerations in determining the ideal level of income should be made by considering what other deductions and tax attributes are available.
SPLIT YOUR INCOME WITH YOUR SPOUSE OR CHILD - Many of our clients took advantage of the income splitting strategy we highlighted in our June 2022 blog post. At that time, the CRA interest rate was 1%, providing a great opportunity for clients to lend funds to their spouse or child over 18 and shift income to the lower income family member. To ensure the plan remains effective, interest needs to be paid by January 31 of the following year and the loan properly documented. With the significant increase in the CRA prescribed rates over the past year, our advice this tax season was for clients to wait until the rates are reduced to employ this strategy and instead we considered other income splitting opportunities more effective in this environment.
DONATE SHARES NOT CASH - Helping others and charitable giving is important for our clients. When donating to a registered charity, consider donating public company shares as opposed to cash. A donation of shares secures a tax credit AND the added benefit of avoiding tax on any capital gain. Also, as a reminder, donations over $250 get higher tax credits making the tax savings closer to a deduction (but not quite).
CLAIM MEDICAL EXPENSES – The medical tax credit is a very common claim for most individuals. However, we frequently see missed tax savings because receipts and costs during the year were not tracked. It is much better to save the receipts while expenses are being incurred – don’t wait for tax time. As a reminder – claims for medical expenses include payments for eligible dependents (including your children, parents, and grandparents to the extent that you support them) not just yourself. Eligible expenses include premiums paid to medical insurance, prescriptions, purchase of new eyeglasses or contact lenses, and payments to other practitioners including physiotherapy, chiropractors, etc. Out of country medical expenses also qualify. Given the flexibility of claiming for any 12-month period that ends in the year, it is not just the calendar year that is relevant.
Whether you managed to implement the above strategies in 2022 or not, NOW is a great time to start keeping receipts and planning for 2023.
Reach out to our team if you have any questions and subscribe to our mailing list so you can receive future tips and recommendations from Tracey that will help minimize your personal or corporate tax burden.
