Tax season: why it pays to plan ahead

For many people, tax planning revolves around the RRSP contribution deadline. But that could be too late if you’re trying to take advantage of every opportunity to reduce your tax bill. With a little advance planning during the year, you’ll have a better chance of lowering your taxes.

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A little paperwork goes a long way

If you receive a regular paycheque, it’s easy to think your income and the taxes you pay are on autopilot. Taxes and CPP/QPP contributions get deducted, contributions get made to a company benefit plan, and it can seem like you don’t have a lot of control over the numbers. The truth is, you have more control than you think, and there are ways to lower your tax bill and put more money to work.

Planning doesn’t need to be complicated. You only need to locate a few documents and set aside a little time to chat with your IG Consultant. Key documents include:

  1. Your notice of assessment sent from the Canada Revenue Agency (and available online if you have a My Account)
  2. Your latest pay stub and your best estimate for any income from upcoming bonuses or commissions
  3. Statements for non-registered investments

This information will help your IG Consultant determine if any action needs to be taken before the end of the calendar year to maximize tax savings for you. Depending on your situation, they may even be able to help you reduce the taxes deducted by your employer so that you benefit from those tax savings during the year rather than waiting until next spring.

Planning for the Rs

The Rs are your registered accounts. These accounts are either tax-deferred or tax-free. They include:

  • Registered Retirement Savings Plan (RRSP)
  • Tax-Free Saving Account (TFSA)
  • Registered Education Savings Plan (RESP)
  • Registered Disability Savings Plan (RDSP)

When planning to optimize your contributions to registered accounts, consider the order of events. For example, a contribution to your RRSP will generate tax savings. You could then contribute that amount to your RESP to benefit from grants from the federal and some provincial governments.  

Consider capital gains and losses

Sometimes, it makes sense to sell investments that have gone down in value, because you can use the loss to lower your taxable income, if you have taxable capital gains in the current year or the last three years. You should seek the advice of a qualified tax specialist before taking this step. If you decide this approach is right for you, your IG Consultant can guide you through the steps and potential tax advantages. You can learn more about capital gains and losses here.

The bottom line

Year-end and the RRSP contribution deadline are not the only times when you should be planning the best way to minimize taxes. A little extra attention throughout the year can reap big rewards.

Work with your IG Consultant to make proactive changes to your IG Living PlanTM so you can take full advantage of tax-efficient strategies that will enhance your overall financial well-being. If you don’t have an IG Consultant, you can find one here.

You can also discover more tax-planning tips here.

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    Bonus advice on bonuses

    If a bonus is paid directly to you, you will probably have taxes withheld at source. However, if your employer allows it, some or all of the taxes on your bonus may not have to be withheld if your bonus is paid directly into your RRSP. Discuss the best way to accept your bonus with your IG Consultant, once you know the amount and the timing of the payment.
Written and published by IG Wealth Management as a general source of information only, believed to be accurate as of the date of publishing.  Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice.  Trademarks, including IG Wealth Management and IG Private Wealth Management are owned by IGM Financial Inc. and licensed to its subsidiary corporations. The Canada Education Savings Grant and Canada Learning Bond (CLB) are provided by the Government of Canada. CLB eligibility depends on family income levels. Some provinces make education savings grants available to their residents.