Tips on Tax Carry Forwards

Some tax credits and tax deductions can be carried forward. If you or your spouse are unable to use specific tax credits and tax deductions during a year, and your unable to split them with your spouse then do check to see if you are able to carry them forward. Some tax credits that can be carried forward include tuition and education amounts, student loan interest and charitable donations. Some tax deductions that can be carried forward include moving expenses, employment expenses and losses. Losses are very powerful and not only are you able to carry most losses forward, but some losses can even be carried back to get taxes back from prior years. Remember that Capital Losses need to be applied against Capital Gains, however Non Capital losses can typically be applied against any income. To Carry a Loss back you must complete a T1A – Request for Loss Carry Back. Remember also that if you have missed something on a prior year’s tax return you can complete a T1 adjustment to amend that prior year’s tax return and receive a refund from tax you paid in prior years

Using your Personal Exemptions

Every tax paying Canadian has a Personal Exemption, called the Basic Personal Amount on the Tax Return. The Federal Personal Exemption for 2009 is $10,320 and the Provincial Personal Exemption for 2009 is $16,775. This means you can make up to $10,320 without paying any Federal Tax and $16,775 without paying any Provincial Tax. If one spouse makes less than either personal exemption then the higher income earning spouse can claim the other spouses’ unused portions of the exemptions. In the case where one spouse has no income, the other spouse may claim the full exemptions of the other spouse. Also for single parents, you may claim your child as an “equivalent to spouse” and claim double exemptions both provincially and federally. Using the Personal Exemption is key in tax savings, and if the couple has a corporation that is the main source of income then there is flexibility on how much income and what type of income each spouse is given.

Income Splitting

Many types of income can be split, only a few of them can be split at the time of filing the tax return if you have not yet done what is required prior. Business income can be split in many ways, by paying wages, dividends, bonuses and more. Wages can be paid for work the spouse has done, dividends can be utilized if the spouse is a shareholder, and bonuses can also be paid to spouses. Capital Gains income can be split by either purchasing the asset jointly, or flowing the Capital Gain through a Family Trust. Dividends can also be split easily using the family trust. CPP and Pension income may also be split. With CPP you must apply with Service Canada to split the income, however with other pensions you can typically just split it right on the Tax return. RRSP income may be attributed to the other spouse if they are made the Annuitant. Some RIFF income can also be split between spouses. So as you can see much of the income from investments, businesses and Pensions are able to be split between spouses. Don’t forget to include your kids in income splitting where possible.

Tips on Tax Planning

The problem with most people’s tax planning is that they do it last minute or try to do it when it is too late. Although you are currently completing your taxes for 2009 there is not much you can do to save taxes for 2009 now! Planning happens early, that’s why it’s called planning. Planning for 2010 should be happening as you complete and file your 2009 tax return, and followed through right until December 31^st. That being said, what can we do to still save taxes for last year? There are still some things you can do now, such as income splitting, deduction splitting and credit splitting. In the next blogs I will briefly discuss each.