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By Ray Turchansky
Edmonton Journal
Wednesday, May 02, 2007
EDMONTON - With the passing of this year's income tax filing deadline comes a time to reflect on 2006 and to start planning for the 2007 taxation year.
Adrian Mastracci, fee-only portfolio manager at
KCM Wealth Management in Vancouver, says, "Take advantage of other budget changes, such as being able to contribute to an RRSP for two more years before having to convert to a RRIF or life annuity at age 71 instead of 69."
For some reason, there seemed to be an inordinate number of T3 slips in particular that were sent out late this year, causing taxpayers to scramble to get their returns filed at the last moment, or to send in T1ADJ adjustments after yet another T-slip straggled in.
Typically, employers must submit T4 slips and financial institutions must submit T5 slips by the end of February, but T3 slips with trust income don't have to be issued until the end of March. Now Evelyn Jacks of the Knowledge Bureau in Winnipeg reports that the federal government and the investment funds industry are huddling and "it is expected that draft regulations to give effect to a more efficient process for 2007 T3 slips will be released in the near future."
MORE FOLKS CASHING IN
Another growing trend each tax season is that an aging population redeeming more and more shares and mutual fund units that were purchased years ago, and in many cases inherited decades earlier, must determine the original purchase price in order to calculate capital gains and losses.
With the rush of tax season behind us, now is a good time to list each of the shares of companies and units of funds and trusts you hold outside of registered accounts. Then find out when you bought each investment and how much you paid, either by going through your investment slips before they get thrown out, or by asking your investment broker now, because their records are often kept only seven or eight years.
Speaking of capital gains, now is a good time to look at your mix of non-registered investments, and consider making shifts to increase your tax efficiency. Across the country there are great benefits in investing for capital gains and dividends rather than getting interest from bonds and guaranteed income certificates and bank accounts.
In Alberta, for example, a person in the top tax bracket during 2007 will pay 39 per cent tax on interest -- the same as regular salary -- and only 19.5 per cent on capital gains and 17.5 per cent on eligible dividends.
The tax advantage of dividends is even greater the lower your income.
The buzz among retirees has been the ability to split pension income as of 2007 in the wake of this year's federal budget. However, there can be pitfalls to pension income splitting, and you should crunch your numbers now before blindly making the election next spring.
BEWARE THE PITFALLS
People 65 and older will be eligible to split income from a company pension, a registered retirement savings plan annuity (but not RRSP withdrawals), a registered retirement income fund or locked-in RRIF, or a deferred profit-sharing plan annuity.
People under age 65 can split income from a company pension and certain other payments resulting from the death of a spouse or common-law partner.
AND THE BAD NEWS...
While pension income splitting could save a couple as much as $15,000 in taxes, PricewaterhouseCoopers points out that pension sharing can either enhance or reduce each spouse's ability to collect Old Age Security, because an OAS recipient with net income greater than $63,511 in 2007 must repay 15 per cent of the excess.
Furthermore, pension splitting could affect a spouse or partner's ability to claim the pension credit, the age credit (reduced by 15 per cent of an individual's net income greater than $30,936), and the medical expense credit (on amounts greater than three per cent of individual net income).
Adrian Mastracci of KCM Wealth Management in Vancouver says people should take advantage of other budget changes, such as being able to contribute to an RRSP for two more years before having to convert to a RRIF or life annuity at age 71 instead of 69.
As of 2007 you can claim the new fitness tax credit, so keep receipts for athletic activities approved by Canada Revenue Agency, and remember to keep public transit receipts for that credit which kicked in last July.
A REAL EDUCATION
As well, changes to registered retirement savings plans mean no annual contribution maximum, and you should increase your contributions because the 20-per-cent Canada education savings grant now applies on the first $2,500 annual contribution per child instead of $2,000.
Meanwhile, the Alberta budget approved pension-income splitting and enhanced the education amount that can be claimed by post-secondary students in 2007, from $475 to $600 per month for full-time students and from $143 to $180 a month for part-time students.
And the Alberta donation credit on amounts greater than $200 has been raised from 12.75 per cent to 21 per cent for 2007, which combines with the federal rate of 29 per cent.
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