Even though you don’t have to file your 2010 income tax return until the end of April 2011, it’s a good idea to take stock of your tax situation partway through the year. Here are five mid-year personal tax planning tips from Chartered Accountant James Dunlop, a partner with Collins Barrow KMD LLP in London.
1. Check your tax bracket – If you work at more than one job or have other sources of income during the year, remember that the incomes will be combined. This may put you in a higher tax bracket, meaning you may owe more tax than is being deducted at source. Realizing this early will allow you to put the money aside, avoiding a last-minute surprise.
2. Review your investments – Check your investments for any accrued gains or losses and plan an orderly disposal of any investments you want to exit from. Keep in mind that you can carry back capital losses to any of the three prior years to offset capital gains in those years. You can also offset 2010 capital gains with any capital losses carried forward from previous years.
3. Consider opening a Tax-free Savings Account (TFSA) - TFSAs can help you achieve a variety of short- and long-term goals. Their key benefit is that neither the investment earnings in the account nor the withdrawals are taxable.
4. Contribute to your Registered Retirement Savings Plan (RRSP) – It’s a good idea to contribute to your RRSP as early as possible or on a regular basis throughout the year. If you retire partway through the year and receive a retirement allowance - consider transferring the eligible portion to your RRSP.
5. Consider withdrawing money from your RRSP – If 2010 is a low-income or no-income year for you, consider withdrawing money from your RRSP. Because you are in a low tax bracket, you will pay less tax on the withdrawal. But remember that the amount deducted at source is only an installment on the actual amount of tax owing. The amount of tax you owe will be calculated based on your total income.
Brought to you by the Institute of Chartered Accountants of Ontario
The Institute of Chartered Accountants of Ontario is the qualifying and regulatory body of Ontario’s 33,000 Chartered Accountants and 5,000 CA students. Since 1879, the Institute has protected the public interest through the CA profession’s high standards of qualification and the enforcement of its rules of professional conduct. The Institute works in partnership with the other provincial Institutes of Chartered Accountants and the Canadian Institute of Chartered Accountants to provide national standards and programs that are used as examples around the world. </em>
