Tax deductions

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Concerned you'll owe money on your taxes this year? It's been said the only unavoidable aspects of life are death and taxes. If taxes are indeed inevitable, it's important to use them to your advantage by planning ahead for tax time.You can reduce your taxes by taking charge of your tax reporting and planning to benefit from your credits/deductions. Here are some suggestions for what you can do:

Check Your Assessment
 
Review your Notice of Assessment for your previous year’s return. It has valuable information such as your RRSP contribution room for this year. Your previous year’s Notice of Assessment return also tells you whether the Canada Revenue Agency (CRA) agreed or disagreed with the way you filed. Track how much you've contributed to your Registered Retirement Savings Plan (RRSP) throughout the year.
You can use your RRSP contributions as income tax deductions to help save for retirement. If you haven't reached your maximum limit for this year, you might want to increase your monthly contributions or consider an RRSP loan. Through your RRSP, you get a tax shelter from any capital gains or earned income. Over the long run your money can work for you.

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Consider Spousal RRSPs

If you're married or are common-law (including same-sex), in addition to your RRSP plan, you should consider contributing to a spousal RRSP. Typically, this allows a high-income spouse to transfer future income to a lower-income spouse, allowing you to minimize your taxes after your retire. Whether you contribute to your personal RRSP or a Spousal RRSP, you reduce your taxable income.

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Manage Your Expensive Medical Bills

Large medical bills are never enjoyable. However, you can benefit most from your taxes by carefully planning your medical procedures. People often forget to take advantage of their eligible medical expense claims. They're based on any rolling 12-month period ending within the taxation year. If you expect large medical bills, you should try to schedule them within the same 12-month period to maximize your Medical Tax Credit.

Turn Losses into Gains. If you have non-registered investments that have performed poorly, you may be able to turn those losses to your tax advantage. Use your capital losses to offset capital gains. Start by applying losses to reduce your gains in the current year. You can also use your losses to reduce capital gains in the previous three years or carry them forward indefinitely.

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Maximize Contributions

Another good way to reduce your tax bill is to make sure you maximize your group RRSP contributions. This is a good time to assess whether your payroll contributions are set to the proper amount. If you're way under your contribution limit and you are considering taking out a loan for next year, you may want to plan more effectively for the next tax year.

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Find Last Year's Return

Finally, if you filed a T1 personal tax return last year, find your working copy from your files and review it with your personal file records for this year. It can provide useful information for completing your taxes.

Many Canadians put off planning or filing their taxes until the last minute in April. Delaying the inevitable only makes the process complicated and stressful. Although tax filing can seem demanding, it's basically your annual report to the federal government. You can use the process to your advantage or not. It's up to you. By preparing your taxes wisely, certain tax-saving strategies will, over time, help you create wealth for a successful and fulfilling retirement. Taxes are unavoidable but good tax planning can also be advantageous to long-term financial planning.

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If you have a general question or suggestion about this newsletter, please send an e-mail to can_pencontrol@sunlife.com or write to At a Glance Newsletter,  Group Retirement Services Marketing, Sun Life Financial, 225 King Street West, 14th floor, Toronto, ON M5V 3C5.This bulletin has been created exclusively for you. It addresses issues to help you with your financial planning and investments.

Group Retirement Services are provided by Sun Life Assurance Company of Canada, a member of the Sun Life Financial group of companies.

 

Last Update: March 2005