You know that it's not what you make but what you keep that really
counts, however, are you doing enough to ensure that the Canada Customs and Revenue Agency (CCRA) collects as little of your money as possible each year on April 30?
One of the best strategies for legitimately reducing the tax you pay is
adopting the belief that the only good expense is a tax deductible one.
Your home, responsible directly and indirectly for many of your
expenses, is at the heart of good strategies for increasing what you
keep.
Home buyers who save their down payment using an Registered
Retirement Savings Plan (RRSP) can gain on the resulting tax deduction
each year as well as on the tax-deferred investment environment. The
The Home Buyers' Plan allows up to $20,000 per
person to be borrowed from the RRSP to build or buy a home without
losing RRSP capacity or having to include the withdrawal amount as
taxable income.
Home-based businesses turn heating expenses and other costs
into deductible expenses. This business does not have to make you rich
and famous just have a reasonable expectation of making profit. You may
want to start out with a part-time or seasonal venture until you find
the right business. Losses (that's more expenses than income) can be
carried forward until the money rolls in. Allowable expenses include
everything you reasonably spend to make money. CCRA's test of
"reasonableness" includes computers, office equipment, stationery, word
processing services, courier charges, online services and most goods and
services relevant to your particular business. If your home office
occupies 35 per cent of your home, you may be able to deduct 35 per cent
of the following home maintenance expenses: mortgage interest, home
insurance, heating, property taxes, gardening costs, repairs and other
maintenance costs.
Renting out part of your home can bring the added benefits of
companionship and someone to help maintain the property. Improvements to
the rooms you rent out are deductible expenses so you may have the
pleasure of improving your home and gaining a deduction at the same
time. You'll still need a home office to run this business venture so
you have a wide range of benefits to draw on.
Putting the annual maximum into your RRSP can generate a
sizable tax rebate which may be useful for paying down your mortgage.
Interest on the money you borrow to put into your RRSP is not tax
deductible unless you borrow to buy investments to add to your RRSP.
This loan could be in the form of a mortgage or line of credit against
your home.
While you're preparing your 2001 return, take time to see which
deductions or credits you could qualify for with minor modifications to
your lifestyle or business approach in 2002. If an accountant or
financial advisor completes your return, that individual should advise
you on keeping as much of your money as possible, but don't count on
them to volunteer this information. Ask a lot of questions. Beware of
financial advisors who offer suggestions based on your chances of
getting away with something. CCRA personnel will explain how to do
things properly, but insist on a specific written or online reference so
you can make sure all is as described.
For your information, here's how deductions and credits work:
If an expense is treated as a tax deduction, taxable income is
reduced by the amount of the expense. Deductions such as RRSPs favour
those in higher tax brackets. Each deduction has its own qualification
criteria and these often change from year to year.
Tax credits, like medical expenses and charitable donations,
reduce the amount of tax payable. Credits vary from province to
province. For instance, Ontario offers property, sales and child care
tax credits while Manitoba has cost of living, property and learning tax
credits. Refundable tax credits have value even if no tax is payable.
Credits reduce tax, perhaps to zero. If credits exceed the tax payable,
the difference is given as a tax refund. Non-refundable tax credits have
no value when no tax is payable. Excess non-refundable credits are not
given as tax refunds.
Capital gains is the profit you make on the sale of property,
either personal like stocks and bonds or real property like your cottage
or investment real estate. The costs of acquiring and disposing of
property are deducted from the profit and 50 per cent of the balance is
added to your taxable income. The cost of capital improvements, not
merely maintenance and upkeep, may be deducted from the profit so keep
all your receipts. Profit on the sale of your home or principal
residence is exempt from capital gain.
Published: April 16, 2002
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Futurist and Strategist PJ Wade is "The Catalyst" - intent on "Challenging The Best to Become Even Better." PJ earned this title by translating the dynamic impact of Boomers and their multi-generation families into relevant insights that start people thinking and taking action—in business and in life.
Author of 8 books and more than 1800 published articles, PJ encourages individuals to become their own futurist. PJ writes and speaks about the insight, knowledge and solid decision-making skills that professionals and their clients need to live and work in this vortex of change. For instance, since PJ knows that home is headquarters for the new decades-long "unretirement," she wrote the popular book "Reverse Mortgages: Best Friend, Worst Enemy...Your Choice!", which is filled with suggestions and cautions on protecting, building and managing home equity. Her new business book, "What's Your Point?: Cut The Crap, Hit The Mark & Stick!" will be published in 2012.
As The Catalyst, PJ provides strategic communication, client appreciation and advanced education services to the financial, tourism, lifestyle and service sectors - and the clients they serve. A frequently-quoted financial and business commentator, PJ is a thought-provoking strategic speaker who offers practical, real-life suggestions on leaving "the box" behind and embracing Forward Thinking - a talent she regularly demonstrates in this column. For more on keynotes, blogs, books and information on a range of 21st-Century topics, visit TheCatalyst.com.
Futurist and Strategist