Taking a Bite Out of Taxes

Putting tax-smart strategies to work for you may be almost as important as growing investments when it comes to wealth management. Here are some key financial strategies to help you minimize your tax burden.

Invest in your RSP

Making an RSP contribution can reduce the total amount of tax you have to pay for the year in which you claim the contribution.

Make regular RSP contributions

If you commit to investing regularly in your RSP throughout the year, you can apply to the Canada Revenue Agency (CRA) to reduce the taxes that are deducted from your salary at the source.

Reduce withholding taxes at source

In addition to contributing to an RSP, in certain cases if you make support payments or have significant child care expenses, you may be eligible to have less tax withheld at source by your employer. You can do this by completing CRA form T-1213. You will need to complete this form every year and it should be completed by October to take effect for the next taxation year.

Contribute to a spousal RSP

If your spouse is expected to be in a lower tax bracket than you at retirement, it may be advantageous for you to contribute to a spousal plan. Withdrawals at retirement would be taxable in the hands of the lowerincome spouse.

Defer tax by holding interest-bearing securities in a registered plan
Because interest income is taxed at a higher rate than dividend income or capital gains, it's a good idea to defer taxation on interest earnings by holding them inside a RSP, and holding more tax-efficient investments in a non-registered account.

Realize capital losses

If you have non-registered investments that have lost money, you may want to consider selling these investments before year-end in order to offset any capital gains you realized during the year.

Borrow to invest

Borrowing money to invest, known as leveraged investing, offers investors a potential tax benefit since the interest on the loan can form part of your tax credits, if you invest in eligible Canadian securities and hold the investments in a non-registered account.

Contribute to a Registered Education Savings Plan (RESP)

When you contribute to an RESP – up to $4,000 per beneficiary each year – the beneficiary may qualify for the Canada Education Savings Grant. Unlike RSP contribution room, you cannot carry RESP contribution room forward.

Make charitable donations and political contributions

To qualify for associated tax credits for a given taxation year, the contributions must be made before the end of the calendar year. Tax credits are higher for total charitable contributions and political contributions over $200.

Lower taxes with dividend income

The federal government has proposed to reduce the federal tax rate on dividends received by Canadian residents from taxable Canadian public corporations. As of December 15, 2006, the following Taking a Bite Out of Taxes provinces followed suit and reduce their tax rates on dividends as well including British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Nova Scotia, New Brunswick and Newfoundland.

Talk to Your Selectpath Advisor

Your Selectpath Financial Advisor can help you by providing more information on these financial strategies as well as giving you specific advice or your own situation, or providing a referral to a tax specialist if warranted. You have every reason to make the most of all strategies available to minimize the taxes you pay and maximize your wealth-building potential.

Smart Ways to Spend Your Refund

If you're expecting a tax refund, here are some financially healthy ways to spend it:

Pay down credit card and other consumer debt
Pay off an RSP loan
Catch up on previous years' RSP contribution room
Make next year's RSP contribution
Contribute to an RESP
Build an emergency fund
Invest in non-registered assets
Make a lump-sum payment against a mortgage
Purchase insurance to manage risk
Donate to charity

The statements contained herein are based on material believed to be reliable, but are not guaranteed to be accurate or complete. The article is not intended to provide financial, legal, tax or investment advice. For information purposes only. Particular investment or trading strategies should be evaluated relative to each individual's objectives. TD Asset Management Inc., The Toronto-Dominion Bank and its affiliates and related entities are not liable for any errors or omissions in the information or for any loss or damage suffered. TD Mutual Funds is a trade-mark of The Toronto-Dominion Bank, used under license.