Taxes are a fact of life. They affect every Canadian in most aspects of their lives. Whether it's earning an income, making a purchase, owning real property, investing, running a business, or transferring your estate, life is full of taxable consequences that, if left unchecked, could consume an ever increasing amount of one's livelihood. While the Income Tax Act was created specifically to ensure that everyone pays their fair share it also affords all taxpayers the right to organize their financial affairs in such a way so as to minimize their taxes whenever and however possible within the legal confines of the Act. And that is the objective of tax planning.
The biggest mistake many people make is to wait until April to concern themselves with their taxes. Throughout the year there are many financial decisions that can be made that could significantly impact the amount of taxes owed. The Act is full of income exclusion rules, key tax credits, retirement plan contribution options, and investment rules that are easy to miss or miscalculate without the organization and foresight that tax planning provides.
And, if there is any certainty beyond taxes, it is that the tax rules will change as they seem to do nearly every year. Because these changes usually affect such important things as exclusion amounts, credit eligibility, retirement plan contribution limits, and the tax rates themselves, they will almost certainly affect spending, saving, investment and borrowing decisions made throughout the year.
At its core, tax planning is the process of organizing your finances in such a way to take advantage of the many rules that allow you to maximize the amount of income you keep each year or defer into the future. While the process is essentially the same for any taxpayer, it may entail different types of tax strategies depending on your particular financial situation. Strategies for deferring or splitting income, deferring or maximizing retirement contributions, capital gains or losses, property ownership, charitable giving are applied differently in each situation, so they must be developed specific to your needs.
Tax planning and tax strategies involve the application of the rules and provisions of the Income Tax Act, which is voluminous and in a constant state of change. Because their effective application can result in hundreds or even thousands of dollars of tax savings each year, it is strongly recommended that you seek the guidance of a financial professional with experience in income and investment planning strategies for minimizing personal income taxes.
I don't charge any fees to provide tax planning services. I work hard to ensure that I can maintain a fee-free operation.
It's my hope that if you trust the plan and decide to move forward with it, that you will allow me to manage the investment accounts and insurance portion of a tax plan. However, there is no obligation to do so.
Instead of charging fees, I'm paid trailer commissions from mutual fund and insurance companies based on the business I do through them.
Tax planning is the most important part of any financial plan because its an easy way to save money and keep it in your own pocket. The sale of large ticket items is the most common situation for this type of planning.
For example, if you're in a 40% income tax bracket and there is a legal way to pay no tax on any amount of income, it's the same as making 40% growth on your investments because you didn't have to pay it to the government. An RRSP contribution is the most common practice for this.
Business owners have many more strategies at play when it comes to tax planning, but it's important for everyone.
I've heard this argument before. If you're interested in charitable giving to help better the world around you, I believe tax planning is the perfect way to make your money more effective.
If you could save $1,000, for example, through tax planning, why wouldn't you? Then the money is in your hands and can be directed to a specific cause of your choice instead of letting it trickle through the tax system. In my opinion, it's not only more effective, but there is more reward in seeing it directly create a difference for the organizations you believe in, or programs that are local to you. Your charitable giving will also reduce your taxes the following year so you can pay it forward again!