Plan ahead to reap the best tax savings, says EY

April tax deadline a good time to plan for the next year

TORONTO, March 31, 2014 /CNW/ - With only 30 days to the personal tax filing deadline, EY reminds taxpayers that being proactive about tax planning throughout the year is the best tax savings strategy.

"The most impactful tax savings strategies generally need to be executed during the specific tax year – not at filing time," says Gabe Baron, senior manager, tax with EY's Private Mid-Market Practice. "Tax returns tell the story of what happened during the past year, but being proactive helps you write the story you want to tell."

EY suggests setting reminders around a few key dates during the year to take stock of where you stand. For example, the beginning of the year (or right now) is a good time to evaluate your family's circumstances to determine whether income splitting could be beneficial. The cash benefit of income splitting comes from Canada's graduated rates of tax, meaning it might be advantageous to restructure investments to report income at a family member's lower tax rates. Of course, it's important to seek tax advice on these arrangements to ensure the expected benefits are realized while complying with the complex tax rules associated with the area of income splitting.

Taxpayers might also consider making RRSP contributions early – there's no need to wait until February of the next year.

"Contributing early will allow an early, or extra, year of tax-free growth on investment money," says Baron. "You can go online to see your personal statement of available contribution room."

Meanwhile, people who are required to make estimated quarterly tax payments for the following tax year – generally, investors and unincorporated business owners – might consider making a single payment on July 30 instead.

"The single payment works because there is a tax rule that permits early paid tax installments to generate 'good' interest that offsets the interest on late or deficient payments," explains Baron.

December is the "last kick at the can" for implementing certain tax transactions that can generate benefits on that year's return. The typical transactions at that time are donations to registered charities, and claiming losses on investment positions.

"Setting a reminder now for the end of the year means you won't be caught wishing you had implemented that last transaction," says Baron.

For those who weren't proactive in the last year, Baron says there are a few places where they may still be able to find savings.

"Consider reviewing your bank records and credit card statements," he says. "Many organizations that issue receipts for expenses and credits that can reduce your taxes no longer issue paper slips in the mail. Reviewing your statements can help jog your memory to identify transactions that could be claimed for tax purposes. Of course, you'll need copies of the receipts to make the claims."

Baron adds: "Tax planning is an important part of any business strategy. Those individuals who approach personal tax planning with similar vigour will be in a better position to reap the best tax savings available to them."

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SOURCE: EY (Ernst & Young)

Erika Bennett, [email protected], 416 943 5497, Sarah Shields, [email protected]; 604 648 3607; Julie Fournier, [email protected]; 514 874 4308