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Know Your Tax Changes for 2006

This article was originally published in the Autumn 2006 issue of Moving Business Forward for the Guelph Chamber of Commerce.  To download the PDF of this article click HERE.

 

On May 2, 2006 the first Conservative party government budget in 13 years delivered numerous personal and business tax breaks for middle-class Canadians and what better time than the lazy hazy days of late summer to get your tax affairs in order.

1. Know Your Tax Changes for 2006.  Once again there are many tax changes, which could significantly affect your investment planning decisions before year end.  For example:

 Save those Stubs – If you purchase a monthly public transit pass, start keeping those receipts in a safe place as July 1st marked the beginning of the new public transit pass credit.

 Cash in on the Kids – If you have children under the age of six and you are not already receiving the Child Tax Benefit, you must formally apply for the new $100 per child monthly payment which began in July.  Application forms are available online at cra.arc.gc.ca

 Consider a charitable donation – The new budget eliminated the capital tax for gains on publicly listed securities donated to charities or public foundations after May 1, 2006.  This also applies to donations of mutual funds or segregated funds.  It reduces the effective inclusion rate to zero from 25 per cent.

2. Tax Loss/Tax Gain Selling May Make Sense.  Consider disposing of losers in your non-registered accounts to offset capital gains in the current year; or if you have no gains, carry back losses to prior years’ capital gains to recover taxes previously paid.

3. Contribute to your RRSP.  Count yourself out of this statistic; 90% of Canadians fail to top up their RRSP contribution room with actual contributions.  Instead, get in line for double digit returns resulting from the tax savings offered by an RRSP contribution.

4. Buy New Income-Producing Assets.  If you are a business owner and are in the market for a new car, computer or office furniture, buy now to maximize your capital cost allowance write offs for 2006.

5. Make your Dentist Appointment.  Paying for medical or dental services – even eyeglasses or batteries for your hearing aids – before year end can help reduce taxes

6. Fill up the Car.  Small business owners with December 31st year ends should make sure they spend on recurring operational items on or before December 31st… fill up the car, but the paper supplies for the office, including thank you notes for your financial advisor and toner for the computer, reward special clients with gifts or pay year end bonuses to staff.

7. Gather Receipts now for all Your Deductions.  Taxpayers chronically under-report eligible deductions, including moving expenses, child care expenses, employment deductions, and carrying charges.  This can help to minimize exposure to claw backs of refundable and non-refundable tax credits too.

8. Reduce Quarterly Installment Payments.  Pay only the correct amount – not one cent more!  Remember, you can adjust your installments if your income has dropped significantly from the prior year.  This means some taxpayers may be in line to skip their December 15th installment payment altogether, if their income has dropped considerably from last year’s results.

9. Reduce Tax Withholding on Next Year’s Employment Earnings.  Contrary to their popularity, refunds are not a good thing!  If your average tax refund is $1000 a year or more give your head a shake… that’s money that should have been working for you all year long.

10. Get a Head Start.  If you do receive a tax refund, instead of using it on a round of golf or a vacation, get a head start on your 2007 RRSP contribution.