Not just a spring thing

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This article was published 06/04/2024 (610 days ago), so information in it may no longer be current.

If you fail to plan, you could be failing to save money.

It’s a fair statement regarding any personal finance subject. And it’s certainly true about taxation.

Yet most Canadians don’t do much — if any — planning around their taxes beyond what’s on their radar this month.

That is, they’re planning to file their tax return before April 30 for the 2023 tax year.

IG Wealth’s annual tax survey alludes to as much, highlighting our collectively laissez-faire approach.

Although more than half of respondents believe tax planning is a year-round consideration, only a little more than one in four make planning a priority. In turn, only about a third of those surveyed are confident they are taking advantage of all the possible credits and deductions.

“Some people may think that tax planning is for people with a lot of money and not for average folks,” says Aurelle Courcelles, assistant vice-president of tax and estate planning at IG Wealth Management.

“And that may be why a lot of people don’t make it a priority.”

That’s understandable.

Few revel in filing tax returns. The only reward, really, is the possibility of a refund.

That said, getting a refund is actually a symptom of poor planning, Courcelles says.

“Sound planning means you’re taking the steps to minimize the taxes you’re paying ahead of time, so you’re not making an interest-free loan to the government.”

After all, a refund is only taxes you’ve overpaid. With some planning, you can have less tax deducted off your paycheques by accounting ahead of time for the credits and deductions, RRSP contributions included, you’re eligible to receive in any given year.

It’s too late, however, to fill out tax form T1213 for 2023 that does just that. But it’s not too late to prepare for 2024 and get that form filled out today to start saving sooner than later.

“Frankly, I’d rather have my money sooner than wait for a refund,” Courcelles adds.

Now, one concern is not paying enough tax, and owing upon filing rather than receiving a refund. Courcelles argues, however, he would rather do that — pay a little bit come April — opposed to paying too much throughout the year.

Tax planning, of course, involves more benefit than reducing taxes at source with the aim of eliminating a refund.

It’s even more important for folks with U.S. ties — which ensnares more people than you might think.

“So many Canadian families have got either a family member or an asset in the United States now,” says Darren Coleman, a financial planner and portfolio manager with Coleman Wealth at Raymond James in Oakville, Ont.

“If that’s your reality, you can inadvertently get tangled up in taxation and estate planning in the United States.”

Coleman sees it often in his practice, so much so that he has a podcast ‘Two Way Traffic’ that features cross-border tax experts discussing the tax implications of owning property in the U.S. and snow-birding.

“We commonly see people who have moved from one country to the other, or their kids or parents have moved, or they’ve married an American,” he says.

“The complexities are surprising to a lot of people, and the result of this is people often don’t know the problem they might have until they move, or someone passes away.”

Courcelles says if you believe you may have U.S. exposure, consult with a tax specialist.

“There are tax treaties between the two countries so, at least, any taxes paid in one will be recognized in the other,” he says.

Still, you don’t know what you don’t know, and failure to comply with rules can lead to penalties, Courcelles says.

Dealing with the unknown is par for the course with a lot of taxation. Sometimes regulatory change sneaks up on us.

An example of this are the recent changes to trust reporting, which had included bare trusts.

Many individuals with joint accounts with aging parents or children were taken by surprise that these were bare trusts, and they needed to report the account, filling out and filing forms by April 2.

Then late last month, Canada Revenue Agency dropped the requirement for 2023 recognizing it was causing confusion.

Tax planning can help avoid these snafus by creating awareness around rule changes. It can also help in other areas, like work-from-home expenses. Workers can no longer claim these costs using the simplified means developed for the COVID-19 pandemic.

You can still claim home office expenses, but they must be done the old way: filling out a T2200 with your employer signing off.

“It’s a lot more work,” Courcelles notes.

Another new twist is claiming First Home Savings Account (FHSA) contributions, which officially became available last April. Those contributions — similar to RRSPs — are tax deductible and can lead to a refund, or if you’re planning right, reduce your taxes on payday.

More broadly, tax planning is likely to lead to better financial fitness for households because it shines light on many other areas of money management, says Robin Taub, a chartered professional accountant and PC Financial spokesperson.

“It’s an opportunity to get on the same financial page,” she says.

While that may be a recipe for difficult conversations, a PC Financial survey found that families who talk about money often have better relationships.

So, tax planning — while having the appeal of mosquito swarm — isn’t only good for your tax bottom line.

The family that tax plans together ultimately saves money together.

Joel Schlesinger is a Winnipeg-based freelance journalist

joelschles@gmail.com