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HomeMy WebLinkAboutThe Citizen, 1996-01-31, Page 11Your income tax - How to make it easier this time By Renate Clements, Manager, Taxation Completing your income tax return ranks second only to the pain of actually having to pay income tax. But with a little planning, the job can be made much easier and the pain more bearable. The secret is to turn your attention to the task now, making sure you have gathered all the documents together well in advance of the April 30 "deadline" and that you keep in mind several important points, some of which are new this year. 1. The most significant change affects self-employed individuals who have a business year-end other than Dec. 31. While a business may keep its non-calendar year-end, the income must be reported based on the calendar year. A special calculation is provided to ensure you don't have to include more than 12 months of business income on your tax return. 2. The deadline for contributions to a Registered Retirement Savings Plan (RRSP) is Feb. 29, 1996. The amount you are entitled to contribute can be found on your 1994 Notice of Assessment, or you can call Revenue Canada for the amount. If you participated in the RRSP Home Buyers' Plan before March 2, 1994, you had to repay 1/15 of the withdrawal back into your RRSP by Dec. 31, 1995. If the 1/15 amount was not repaid, it will be added to your 1995 income. If you have a pension, keep in mind that you can no longer transfer $6,000 of this income to a spousal RRSP. 3. Consider using a computer software program. Programs like CANTAX will make filing your return much easier, reminding you of the full range of deductions. Choose a program which will allow you to prepare spousal returns at the same time, and which will automatically transfer data between the two returns. Cost ... about $45. 4. Charitable donations can be deducted at a higher rate when they amount to more than $200, so it's often better for one spouse to make the claim rather than partners claiming separately. 5. Medical expenses can be claimed for any period of 12 months ending in 1995, so it may pay you to combine, say, your dental work in November 1994 with the cost of medication for your upset stomach in Mexico in January 1995. Also remember to check for premiums paid to private medical plans. 6. If you have your own business, you can claim interest payments on loans for business expenses such as an automobile or equipment for a home office. Statements must be obtained from the lending institutions (which are likely to be busy in March and April as taxpayers realize they need this information). Ask for the statements now. Begin collecting all receipts for business expenses such as telephone calls, postage, office supplies, gasoline and parking. 7. If there's a student in your family, you can claim up to $4,000 in tuition costs, less the amount claimed by the student against his/her income. This applies to children, grandchild?en or a spouse whose education you support. 8. If you're not using tax software, don't forget to claim all appropriate deductions and credits. Many people who prepare their returns manually overlook items they could claim, such as the $1,000 pension credit (if you receive a pension), the age credit (if you are over 65) and the disability benefit (if you or your spouse has a disability). And don't forget to claim the employer and partner GST rebate and foreign tax credits, if applicable. Renate Clements is Manager, Taxation at CANTAX, Canada's leading developer of income tax software for Canadians, Canadian small businesses and tax professionals. She is based in CANTAX's Calgary head office at 1-800-265-3800. C.A.M.C. BOOKKEEPING & INCOME TAX SERVICES INC. • Income Tax Preparation • Financial Statements • Bookkeeping Hours: Monday to Friday - 9 - 5 Evenings & Saturdays by appointment 329 Edward St., Wingham 357-3687 You know you want to invest in GICs/RRSPs We'll find the best rates for you! We recognize that many of our clients select GICs/RRSPs to make up the core of their investments. After all, GICs/RRSPs offer the security of guaranteed rates of return and the comfort of investments backed by solid financial institutions. Ellinti Ithuranrr Ernitrni imitr Blyth (519) 523-4481 An associate broker with Investment Centre THE CITIZEN, WEDNESDAY, JANUARY 31, 1996 PAGE 11. IMMEIII -NEWhag -111WrdllAg -InffEWERITENNiillfiNIMIkelsW•MIEININ matirisioror min its MI 1111 Ern •.-Wk NM II M II n wri=l1r AI I Mk Experts say term insurance makes sense Many Canadians believe that "whole life" insurance policies are a good way to save up for the future. But there are far better strategies you should consider. It's true that whole life insurance lets you build up "cash values" over time. And if your policy participates in dividends, the cash value can be enhanced in years when the insurance company's financial performance is strong. The idea is that at some time in the future, you can take your cash value and dividends (sometimes, though only by cancelling your coverage). But this is not the most efficient way to use your money! The cash value and dividend payouts inside a life insurance policy usually cannot compare to the interest earnings available to other types of savings, like government bonds or GICs. There are also dramatic tax implications you should be aware of. You pay insurance premiums from your after-tax income. If your marginal tax rate is 50 per cent, it takes $2 of income to pay $1 of an insurance premium. Out of $1 Start counting your paycheques Have you ever thought about the number of paycheques you'll receive before you retire? If you haven't, here's a sobering thought: a 25-year-old who plans to retire at age 65 has 960 paydays left. A 45- year-old has only 480. Assuming that you will receive 24 paycheques a year for the rest of your working life, how many do you have left? Now consider how much you save from each paycheque towards your retirement. For many Canadian, a paycheque barely stretches over the two-week pay period. The fact is, most of us have limited time and resources before we retire. But it's important to remember that we may live another 30 years after retirement. The challenge is to bridge the gap between how much we can put aside for retirement and how much we'll actually need. There are three ways you can Continued on page 12 premium, the insurance company keeps a portion to pay for claims, as well as expenses. Only a small portion of the $1 ends up as savings inside the policy. What's the alternative? "If you are not making the maximum RSP contributions each year, you should not take out whole life insurance," says Richard Moens, marketing manager at CIBC Insurance. The old expres- sion "buy term and invest the difference" definitely applies to. many Canadians." The "buy term" strategy works because term insurance is cheaper than whole life. Using the hypothetical number from above, your insurance premium would only be 50 cents, which uses up $1 of pre-tax income. The other $1 of pre-tax income could go directly to an RSP. In this scenario, you now have the life insurance protection you need, and a full $1 of savings, from the same $2 of pre-tax income. Furthermore, you get a 50 cent refund on your income tax, and any interest earned inside the RSP is tax deferred. Overall, you're far better off! If you are considering whole life insurance, you may be able to improve your savings performance by contributing an RSP with inexpensive term life insurance. • WE'RE YOUR R.R.S.P. HEADQUARTERS • Ask about A CREDIT UN ION R.R.S.P. and R.R. .F. 1111 ars,11 gm Each RRSP & RRIF contract is I, i r sir <'4"I RRSP Loans Available insured individually for up to $60,000.00 at Prime Rate TM 48 CLLXTON Ontario Open St., Clinton 482-3467 Mon. to Thurs. COMMUNITY 9 a.m. 118 - 5 Main St. p.m., Fri. CREDIT North, 9 a.m. - Exeter 8 p.m. UNION 235-0640 SERVING THE COMMUNITY SINCE 1952