Top secret tax saving tips for shrewd investors

By David J. Rotfleisch

Special to the Financial Independence Hub

While the most common tax savings tips such as contributing to an RRSP are well publicized, there are tricks that are not well known except by tax professionals.

So, here are obscure ways that we, as long-time Canadian tax lawyers, recommend for you, or people you know, to save on your taxes. After all, you have to make it to spend it.

Reduce Source Deduction Amounts

If you have income tax deductions that result in a large tax refund when you file your 2016 income tax return, then you can submit a form TD-1 form early in 2017 to reduce the amount of source deductions withheld by your employer from each subsequent paycheque.

This will mean money in your pocket every week instead of in 2018 when you file your 2017 tax return.

First Time Donor Tax Credit

2017 is the last year that you can benefit from an additional 25% tax credit for charitable donations made by a Canadian taxpayer who has never claimed a charitable donation in the past. So, if you’ve never made a charitable donation this is your chance to top it off at CRA’s expense.

Medical Expense claims for Spouse or Dependent

You can claim all medical expenses paid not only for yourself but also for your spouse and dependents, even if they have their own income and file their own tax returns.

This means all family medical expenses should be claimed by the family member with the highest income, because this will maximize the benefit. For medical expenses for a dependent other than your spouse or minor child, the amount that you can claim is based on the dependent’s net income, not your own. This means that even low payment amounts can qualify where the dependent’s income is quite low.

Also don’t forget to include hair transplant costs and medical marijuana payments, both of which qualify, but don’t claim for vitamins, which don’t qualify.

Clergyman Residence Deduction

Gain grace from your favourite member of the clergy by telling them about this deduction. An employee who is a member of the clergy, a regular minister, or a member of a religious order can claim the clergy residence deduction if the employee is in charge of, or ministers to, a diocese, parish, or congregation; or is engaged only in full‑time administrative service by appointment of a religious order or denomination. This deduction is worth up to $10,000 each year.

Pension Income Splitting

While CRA generally does not allow income-splitting, CRA does sanction pension income-splitting. Retirees with pension income that qualifies for the pension tax credit can allocate up to half of this pension to their spouse or common law partner.

Tax planning should be carried out to determine the optimal allocation and should take into account the criteria to qualify for Old Age Security payments and certain other personal tax credits.

Income Splitting with Family Members for TFSAs

There are strict limits to the amounts that can be contributed to a Tax-free Savings Account (TFSA).  Also, when a Canadian gifts investment property, such as shares to a spouse or child, the attribution rules in the Income Tax Act apply so that any income earned on the gifted property is taxed to the transferor personally.

However, income earned inside a TFSA is free of tax, so individuals can give gifts of investment property to a family member’s TFSA account without having the income taxed back to them under the attribution rules.

This is a big tax planning win around the TFSA personal contribution limit. Be aware that gifting shares may result in tax on any accrued gain at the time of the gift. Also with a gift to a spouse, any loss will be denied.

Non-taxable gifts to employees

This is a classic win-win situation. You can give non-taxable gifts of up to $500 every year and non-cash long-service and anniversary awards (also under $500 annually) to arm’s length employees and deduct the gifts as a business expense.

Special or Remote Worksite Allowance

If you maintain a home, but work at a special or remote worksite, the allowance that you receive from your employer does not have to be included in your employment income. You can receive these amounts free of tax.

David J. Rotfleisch, CPA, JD is the founding tax lawyer of Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law firm. With over 30 years of experience as both a tax lawyer and chartered professional accountant, he has helped start-up businesses, resident and non-resident business owners and corporations with their tax planning, with will and estate planning, voluntary disclosures and tax dispute resolution including tax litigation. and

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