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By Paul Delean
The Montreal Gazette
Monday, April 23, 2007
With the April 30 deadline looming for filing income-tax returns, many Quebecers already have sent off their forms and closed the books on 2006.
Adrian Mastracci, fee-only portfolio manager at
KCM Wealth Management in Vancouver, says, "It's an opportune time to sit down with an adviser or accountant and fine-tune your game plan."
But tax season really isn't complete without a look forward as well as a look back.
Your 2006 returns provide a snapshot of where you are financially, how efficiently you're using the tax system and what opportunities you're tapping or ignoring.
Adrian Mastracci of KCM Wealth Management says it's an opportune time to sit down with an adviser or accountant and fine-tune your game plan.
With the computer resources available today, you can easily determine if there's something you could do differently, or better, to minimize taxes and keep more of what you earn.
How, for instance, might switching from interest to dividend income affect your household tax picture?
Dividend income not only is taxed at a significantly lower rate, it comes with a tax credit that can be transferred from one spouse to another, a potentially useful feature in households where one spouse has much higher earnings.
Another strategy could be to have all household expenses covered by the higher-earning spouse, enabling the other to use any leftover funds to build a portfolio of income-producing investments.
Inter-spousal loans also might be worth a look. The lender has to charge interest (the prescribed rate is currently five per cent) and declare it on his or her tax return, but the borrower can deduct it as an investment expense.
For investors sitting on large capital gains, contributing stock to charity this year could be one way of alleviating the tax hit.
Families contemplating a large medical expense - such as braces for a child - should weigh the merits of a large, lump-sum payment against a lengthy repayment period. They may find they qualify for a substantially larger medical deduction for a one-time payment than for small payments spread over a period of years.
Several major tax changes also are taking effect this year that could dramatically change the financial dynamics in millions of households.
Ottawa has authorized an increase in the deadline age for maturing a Registered Retirement Savings Plan, or RRSP, from 69 to 71. This means two extra years of tax-sheltered growth for those who want it, and significantly changes the numbers in many retirement scenarios.
Governments also are allowing the splitting of pension income this year. This, too, could throw a new wrinkle into the dynamics of your family financial strategy. Would draining one partner's RRSP before retirement make sense? Is it even worth saving more money in a tax-sheltered plan or is there more potential long-term advantage in capital gains from unregistered investments?
It's worth reviewing the implications.
As for the tax refunds you may be receiving in the next few weeks, there are options to consider there as well.
Ottawa and Quebec both have introduced enhancements to the Registered Retirement Education Plan to assist families in saving for the post-secondary education of their children and grandchildren. You'll now get government grants totalling at least 30 per cent on the first $2,500 of annual contributions to the RESP of a child 15 and under.
Contributing early to an RRSP and paying down debt also are effective uses for refunds. Blowing it on a vacation or big-screen TV? Not so much.
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