Benefit from these tax-saving tips — this year and next

By Charley Tsai, Vice-President, Wealth Planning Support, TD Waterhouse Canada Inc.

A couple in their kitchen review their expected tax refund online.

The April 30th deadline is fast approaching for filing your 2008 personal tax return.

Maximizing your investment returns includes minimizing the taxes you pay. With the April 30th deadline fast approaching for filing your 2008 personal tax return, here are several ways to save on your taxes this year, and also plan for future years.

Carry back capital losses. If your realized capital losses exceed your realized capital gains in 2008, and you have reported net capital gains in any of the three prior years (2005, 2006, or 2007), you can complete the Canada Revenue Agency (CRA) form T1A, Request for Loss Carryback, with your tax return this year and receive a refund on some or all of the capital gains tax you paid in one or more of these years.

Deduct RSP contributions. If you made a Retirement Savings Plan (RSP) contribution or have undeducted contributions from prior years, you may be able to deduct these amounts against your 2008 income up to your 2008 RSP deduction limit. This limit and the total of any undeducted contributions from prior years can be found on your 2007 Notice of Assessment.

Deduct RIF re-contributions. The federal government announced a one-time 25% reduction in the 2008 minimum Retirement Income Fund (RIF) withdrawal requirement in late November of last year. If you received your full minimum payment for the year, and you re-contribute up to 25% of this amount back into your RIF by April 14, you can claim an offsetting deduction for the 2008 taxation year.

Split eligible pension income. You can elect to split certain pension income (for example, employer pension income or RIF income for annuitants age 65 or older) with a lower-income spouse or common-law partner by completing the CRA form T1032, Joint Election to Split Pension Income, together with your spouse or common-law partner.

Another way to split income with a lower-income spouse or common-law partner is to lend him or her monies to invest at an interest rate set by the Canada Revenue Agency — called the “prescribed rate.” For the second quarter of 2009, the prescribed rate for intra-family loans is 1%.

Provided that the borrowed funds earn a return in excess of the prescribed rate and interest is paid annually by January 30, income can be effectively split in this manner.

Claim interest payments. If you have borrowed money to invest in mutual funds or equities in your non-registered account, you may be able to deduct your interest costs.

The Supreme Court of Canada affirmed the common planning strategy for making mortgage interest deductible by liquidating non-registered investments, using the proceeds to pay off the mortgage, and then borrowing to reinvest. You may be able to deduct any carrying charges you incurred to earn investment income.

Group charitable donations. A lower federal non-refundable tax credit is provided on the first $200 of charitable donations. A higher tax credit is available on donations in excess of $200.

It may make sense for one spouse or common-law partner to claim all of the family charitable donations. Alternatively, you can accumulate your donations made over a maximum of six years and claim them all in one year to benefit from the higher tax credit.

Spend your tax refund wisely

Now that you’ve taken all the necessary steps to reduce the taxes you pay, deciding what to do with your tax refund is your next step. There are a number of financially smart choices available:

Paying down personal debt or your mortgage.
Making a Retirement Savings Plan contribution.
Contributing to your child’s or grandchild’s Registered Education Savings Plan.
Contributing to a Tax-Free Savings Account (TFSA). For more information on the TFSA, visit www.tdwaterhouse.ca/tfsa

For assistance with these transactions, speak with a TD Waterhouse Investment Representative at 1-866-280-2022.