tax planning
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TAX PLANNING
Bowman & PartnersAssante Capital Management Ltd.(Member CIPF)
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CANADA’S TAX SYSTEM
Graduated system - the more you earn, the higher your tax rate
Marginal tax rate (or tax bracket) - the rate you pay on the last dollar you earn
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Marginal Tax Rates (2009)
*Federal rates only
Taxable Income Tax Rate
$10,320 - $40,726 15%
$40,727 - $81,452 22%
$81,453 - $126,264 26%
$126,265 or more 29%
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Ontario Tax Rates (2009)
Taxable Income Tax Rate
$8,881 - $36,848 6.05%
$36,849 - $73,698 9.15%
$73,699 or more 11.16%
Ontario also has a surtax of 20% of Ontario income tax in excess of $4,257, plus an additional 36% of Ontario income tax in excess of $5,370.
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Key Concepts
Total income, net income and taxable income
Deductions and creditsTotal payableRefund or balance owing
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Preparing Your Tax Return
Calculate all sources of income– Employment– Business– Investment
Make allowable deductions to arrive at taxable income
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Preparing Your Tax Return (continued)
Calculate the basic tax payable on your taxable income
Claim applicable tax credits, and calculate your net tax payable
Determine your refund or balance owing
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TAX PLANNING
“… the development and implementation of appropriate strategies to reduce, defer, or eliminate either current or future income tax liabilities.”
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Tax Planning Strategies
Splitting incomeUsing tax deferral plansUsing tax-advantaged investmentsMaking all allowable deductionsIncorporating insurance products
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Tax Deferral Plans
Retirement Savings Plan (RRSP)– Entire eligible contribution is tax-deductible– Contribution limit based on earned income
Education Savings Plan (RESP)Disability Savings Plan Deferred Annuities
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Tax Implications of Accounts
“Open” RRSP TFSA
Deposit Not deductible
Deductible Not deductible
Income Taxed Not taxed Not taxed
Withdrawal Not taxed Taxed Not taxed
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Tax-Friendly Investments
Dividend-payingCapital shares or propertyLabour-sponsored fundCorporate class mutual fundFlow-Through Limited Partnership
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Eligible Deductions
RPP and RRSP Split-pension amount Union or professional dues Moving expenses Child care expenses Spousal support payments Disability supports Investment management fees Safety deposit box Investment counsel fees
Interest on money borrowed to earn investment income
Exploration and development expenses
Employment expenses, e.g.,– Tradesperson’s tools– Motor vehicle expenses
Capital losses of other years Foreign income exempt under
a tax treaty
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Tax Credits*
Eligible dependent Public transit Children’s fitness Adoption expenses Pension income Caregiver Disability Medical expenses
Interest on student loans Tuition, education and
textbook Charitable donations Political contributions Investment tax credit Labour-sponsored fund Property tax or rent
* In the Canadian system, most tax credits are “non-refundable”
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Charitable Giving
Calculating your tax credit– On first $200: credit = 15% – Above $200: credit = 29%
Gifts of capital propertyGifts of publicly traded security
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Reducing Net Income
What’s affected by your “net income”?– OAS and EI claw-backs– Guaranteed Income Supplement– Certain tax credits– GST credit– Child Tax Benefit
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Alternative Minimum Tax
Targets those with high incomes who use certain deductions to substantially reduce or eliminate their taxes in a given year.
May increase the person’s taxable income by disallowing certain deductions and replacing them with a $40,000 exemption.
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Estate Taxes
Final tax return– Capital gains and losses– Registered accounts– Medical expenses
Using insurance products
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WHAT’S NEW
Canada’s tax laws are constantly changing. Government budgets often introduce new tax measures. Court rulings and CRA reviews of existing tax laws set new guidelines.
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Recent Tax Changes
Pension splittingChildren’s fitness creditWorking Income Tax BenefitEligible medical expensesDisallowance of gifting-programs
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What’s New in 2009
Basic personal amount - $10,320Age credit increased to $6,408First time home buyers’ creditHome renovation tax creditRegistered plan losses after death
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How Can We Help You?
RRSP contributionsRetirement buyout packageEstate taxationTax-advantaged investmentsIntegrated wealth planning
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This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see a financial advisor for individual financial advice based on your personal circumstances.
Services and products may be provided by an Assante Advisor or through affiliated or non-affiliated third parties.
Leveraging carries its own risks and is not for everyone. Talk to your advisor for advice on properly managing those risks.