Tax Planning Tips

Invest in a Registered Retirement Savings Plan (RRSP)
The RRSP is still one of the best tax savings vehicles available to Canadians. The RRSP is a tax deduction where the saving is equal to your personal marginal tax rate.

Watch investment income outside your RRSP
If you have investments inside and outside your RRSP, consider tax efficiency of investment income. Consider putting funds inside your RRSP that generate interest and other income, such as Guaranteed Investment Certificates (GICs), money market funds or bond investments. Investments that generate tax-preferred sources of income like capital gains or dividends should be in your non-registered portfolio.

Pay your RRSP fees from inside
Consider paying an annual administration fee from inside your RRSP since it is essentially the same as a tax-free withdrawal. Annual administration fees are not taxed as income when paid from assets inside the plan.

Make a final RRSP contribution
If you have earned income in the year you are required to convert your RRSP to a Registered Retirement Income Fund (RRIF) (age 69), you'll have RRSP contribution room in the next year, but no RRSP. You may want to consider making your next year's contribution in December, just before your required conversion date. The penalty for over contribution is 1% per month on the portion that exceeds your contribution limit. But, on Jan. 1, your over contribution disappears and you'll get a tax deduction on your next year's tax return.

Remember, you don't have a 60-day grace period with your final RRSP contribution. You have to make your final RRSP contribution by Dec. 31 of the year you turn 69, not March 1 of the following year

Set up a spousal RRSP
A spousal RRSP allows you to split future retirement income with your spouse. If you will be in a higher tax bracket than your spouse in retirement, consider a spousal RRSP. You will get the tax deduction, but when the money is taken out, it will be taxed in the hands of your spouse, who is in a lower tax bracket.

Contribute to a spousal RRSP after age 69
Regardless of your age, if you have qualifying earned income or unused RRSP contribution room, you can contribute to a spousal RRSP prior to Dec. 31 of the year your spouse turns 69 and claim the deduction for the contribution on your tax return.

Transfer a RRIF back to an RRSP
If you are not yet 69 and find you don't need your RRIF income, you can transfer your RRIF back to an RRSP and tax shelter the capital until you are 69. Keep in mind that the RRIF will still pay out the minimum required amount for the year in which the transfer occurs.

Transfer unused tax credits to your spouse
Certain non-refundable tax credits can be transferred to a spouse if the spouse originally eligible for that credit is not taxable or the credits have reduced the amount of tax to zero. By transferring the unused portion of the non-refundable tax credits for the age amount, pension income amount, disability amount and/or tuition/education amounts to a spouse, you can ensure you are taking full advantage of these credits.

Have the lower income spouse claim medical expenses
Not only is it better to have one spouse claim all the medical expenses, but it is usually in your best interest to claim the medical expense under the spouse with the lower net income (provided they are in a taxable position). The current ruling is that you can claim the portion that exceeds the lesser of $1,614 or 3% of the individual's net income.

Claim all charitable donations with one spouse
The credit for charitable donations is a two-tiered federal credit of 16% on the first $200 and 29% on the balance (plus provincial credits). Spouses are allowed to claim the other's donations and to carry forward donations for up to five years. By carrying forward donations and then having them all claimed by one spouse, the first $200 threshold with the lower credit is only applied once.