The Commerce Times

Filing Taxes

‘Tis the season again. Many of you are all too familiar with the dreaded task of filing taxes, but with the April 30th deadline fast approaching, procrastinating and postponing don’t have to be your only option. Even if you don’t have to pay tax for 2008, there are many benefits associated with filing a return. Claiming tax refunds is one of the main reasons, according to the CRA and H&R Block other benefits include and are not limited to:

• Carrying forward the unused portion of your tuition, education and textbook amounts so that you can use them at a point in the future when your income is higher. These can also be transferred to another party, such as your parents
• Depending on whether you turn 19 before April 2010 you also may be eligible to apply for the GST/HST credit
• If you worked during the year and if your net income was less than the basic personal amount of $9600, you may be able to recover most or all of the tax deductions – if there were any – that were made to your pay cheque

For those who regularly file their taxes, some recognizable credits may include: tuition, education and textbook amounts, transit passes, moving expenses, interest paid on student loans etc. However, note that for the 2008 tax year, scholarships, fellowships or bursaries are no longer reported as income on the tax return and are thus tax exempt.

While it may seem daunting, it is in your best interest to strategize, plan ahead, and make decisions to become more tax efficient. Having said that, two accounts that are worth looking into, are the Registered Retirement Savings Plans (RRSP) and the new Tax Free Saving Accounts (TFSA).

Registered Retirement Savings Plan (RRSP)

More commonly referred to as an RRSP, its main purpose is to provide an account where an individual gets to set aside enough savings, in a tax sheltered environment, to support themselves for the extent of their retirement. The contributions made are invested in GIC’s, mutual funds, stocks, bonds etc. Thus, opening an RRSP account earlier rather than later, allows the assets to increase in value over time. It also serves as a form of deferred taxation to individuals.

RRSP benefits include:

• Contributions made to an RRSP may be deducted from income earned before calculating the amount of tax an individual owes
• Income earned within the account grows faster when its’ tax sheltered, in comparison to investments outside of an RRSP, where any capital gains or interest would be subject to taxes
• Although, withdrawals from an RRSP are taxed, the assumption made is that when an individual turns 71 years old which is when they withdraw the funds – their income would be lower, and therefore they would be in a lower tax bracket – which reduces the amount of tax that is applied to the withdrawals.

Another important aspect of RRSPs is that, if an individual is not able to put in the maximum amount for a particular year, the unused contribution can be carried forward. However, not contributing the full amount would mean that the amount of income that would have been generated over time will be lost.

Finally, two special withdrawal programs exist under the RRSP, namely the Home Buyers Plan and the Lifelong Learning Plan. If an individual is eligible, the Home Buyers plan allows first time home buyers to borrow up to $25,000 tax free from their RRSP’s. And For the Lifelong Learning Plan, account holders can borrow $20,000 tax free as well.

Tax Free Savings Account (TFSA)

A TFSA is sure to heighten the interests of potential and current investors, as this is an account where individuals make annual contributions, and like RRSP’s it gets invested in GIC’s, stocks, bonds and mutual funds in a tax sheltered environment, meaning any capital gains or interest earned is tax free.

According to the Canada Revenue Agency (CRA) the contribution in a TFSA is made up of an annual dollar limit of $5000. The $5000 maximum contribution includes any unused TFSA contribution in the previous year that is carried forward, and any withdrawals made from the TFSA in the previous year. Unlike RRSP’s however, one can withdraw money from the TFSA at any time without any tax consequences. Furthermore, contributions to a TFSA are not tax deductible.

Tax experts advise that the TFSA should develop into an important part of an individual’s investment strategy, because a substantial amount could be generated, especially when interest is compounded over time in a tax free environment.

It is advised that before setting up either one of these accounts that additional research on both the RRSP and the TFSA be done, either by looking it up on www.cra.gc.ca or by speaking with a representative from your financial institution.

While, Ryerson’s Tax Free Clinic sessions have ended which ran March 16th through March 19th, taxpayers can still use NETFILE, a service provided by CRA that enables users to file their personal taxes using the internet. The NETFILE service is free; costs may be incurred if you choose to purchase tax preparation software or web applications. Information on other methods of filing taxes, including through the phone (telefile) or mail can also be found on the CRA website.

If you need help with filing your taxes and require expertise and support, visit the H & R Block website, or use their tax preparation services as another option to consider. Remember time is of the essence, as there is a hefty penalty for late filers. If you owe taxes from 2008, the CRA charges 5% of the 2008 balance owing plus 1% for each full month that the return is late- up to a maximum of 12 months.

At the end of the day it all boils down to how much money you can keep in your pockets after taxes.

By making the most of all the options available, as well as adopting a strategy that stresses on the preservation and growth of your assets, you can maximize your savings in the long run.

Many happy returns!