Any time a good time for tax planning


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(Special) - The tax deadline is over, you've filed your return and, if you were eligible for a refund, you've probably received it by now and done what you want with it.

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Hey there, time traveller!
This article was published 07/06/2016 (2431 days ago), so information in it may no longer be current.

(Special) – The tax deadline is over, you’ve filed your return and, if you were eligible for a refund, you’ve probably received it by now and done what you want with it.

So with the 2015 tax year over and done with there’s no need to start thinking about your taxes till next year. Right!


“Tax season really should be year-round,” says John Waters, vice president and head of tax and estate planning with BMO Wealth Management. “April is not the best time to start thinking about your taxes as the deadline approaches. Now is a good time to sit down with a tax specialist or your adviser to understand what deductions and/or credits are available to you and plan for the upcoming tax year.”

Canada’s tax rules can be a bit mind-boggling for many Canadians. BMO Bank of Montreal recently conducted a survey to find out the top tax questions that Canadians were asking themselves about the 2015 tax year recently passed.

Two of the five top questions related to the Tax Free Savings Account (TFSA).

A test conducted for Mackenzie Investments last year found that although the TFSA has been around since 2009 many Canadians still don’t understand it and know the many applications it can have – basic facts such as the range of investments you can hold in your account, TFSA contributions are not deducted from taxable income like contributions to a Registered Retirement Savings Plan (RRSP) and if you don’t contribute the full amount allowed each year you do not lose the remaining contribution room.

In the BMO study 46 per cent of Canadians were confused about whether they should contribute to their TFSA or RRSP and 39 per cent wondered how their TFSA contribution limit is calculated.

One key consideration on the question of whether to contribute to a TFSA or RRSP is your marginal tax rate today and your expected tax rate in retirement, including the possible clawback of government benefits.

“Generally if you expect your marginal tax rate to be lower when you retire an RRSP is more beneficial, but if you expect the rate to be higher in retirement, then a TFSA may be the better option,” Waters explains.

Your TFSA contribution room is made up of the annual TFSA dollar limit for the current year – $5,500 for 2016 – any unused contribution room carried forward from the previous year and any withdrawals you made from your TFSA in the previous year. “It accumulates every year starting in 2009 for Canadian residents 18 years of age or older even if you don’t file a tax return or open a TFSA,” Waters says.

One of the oldest and most pervasive questions in the minds of tax payers is what to do with that refund if you get it.

The temptation is to use it for something fun like a trip or to buy a big ticket item, but Waters urges people to take the “prudent” approach.

“Take some time to consider what would make the most financial sense for your individual situation,” he says. “Using the money to make a 2016 RRSP contribution now instead of waiting until the deadline will give you almost an extra year of tax-deferred growth.”

Other options include paying off debt, particularly high-interest debt, making a TFSA contribution, investing in a Registered Education Savings Plan, making a mortgage payment or just creating an emergency savings fund.

“It’s important for people to remember that tax is a year-round activity that requires planning, understanding and record keeping,” Water says. “Consult your tax adviser to confirm the specific tax implications and any planning available in your particular situation.”

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.

Copyright 2016 Talbot Boggs

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