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HomeMy WebLinkAboutThe Citizen, 1997-02-05, Page 6PAGE 6. THE CITIZEN, WEDNESDAY, FEBRUARY 5,1997 Some tax tips for seniors By Garry Kalinski Thanks to the government's continual tinkering with the income tax laws, filling out your income tax return is not a simple matter if you receive a pension. There are many rules to follow and some unusual circumstances that tax-paying seniors, and others receiving regular pension payments must consider. These circumstances can be so complex that a good computer software program cbuld prove invaluable. A good tax software program costs about $40 and not only does all the arithmetic, but also calculates the various tax credits based on information such as age and income. The software program should also ask questions such as, "Received due to spouse's death?" If the answer is yes, and if you're getting an annuity from a Registered Retirement Savings Plan (RRSP) and are under 65, you can claim the pension amount not available until 65 if you have a spouse. Here are some tax items to keep in mind this year: 1. You don't have to be 65 to claim the $1,000 pension amount if you're receiving regular pension payments (excluding an annuity from an RRSP). It can be claimed at any age. Canada Pension Plan You can pay holiday bills and contribute to RRSP It's the beginning of RRSP season and you're probably just receiving bills for purchases you rang up during the holidays. After spending money on gifts, vacations and parties, who has money left over to make RRSP contributions? Many Canadians face this dilemma year after year. Do I pay off those credit card bills or should I contribute to my RRSP? "To make these financial decisions, you must understand the difference between 'good' and 'bad' debt," says Elizabeth Hoyle, vice- president of marketing at Trimark Investment Management Inc. "Surprisingly, not all debt is bad." "Good" debt is generally incurred to acquire an appreciating asset. The asset can either be "tangible," such as a units of a mutual fund which may appreciate over time, or "intangible," such as investing in a child's education. It often makes sense to carry some "good" debt - in fact, in many cases the interest paid on it may be tax deductible. "Bad" debt, on the other hand, is debt that's used to buy consumer goods, such as a car boat, clothing or even a vacation. These assets don't usually increase in value, so no income can be derived from them in future years. Most consumer debt is "bad" debt and generally comes from accumulating credit card balances - which attract a higher rate of interest. In fact, some department stores charge up to 28 per cent on balances outstanding. "Bad" debt should be eliminated first: You'd have to earn a phenomenal return inside your RRSP to recover the interest paid on most consumer debt. So should you pay off your debts or contribute to your RRSP? The best solution is probably a mixture of both. If you make an RRSP contribution, you'll be eligible for a tax refund of up to half the amount of your contribution (depending on your marginal tax rate and your province of residence). You could then use this refund to pay off any "bad" debt. Plus, you'll have the added advantage that any RRSP contributions you make will start growing tax deferred. "Talk to your financial advisor about how you can contribute to your RRSP, reduce bad debt and use good debt as a financial strategy," concludes Hoyle. "He or she can help you save on interest payments, reduce taxes and ultimately, invest money for your retirement." (CPP) and Old Age Security (OAS) payments don't qualify. 2. If your income is over $53,215 you must pay back a portion of your OAS payments. This is the government's infamous "clawback", introduced a few years ago. The formula is a little involved but, fortunately, it's simple with a good computer program, which automatically calculates the figure when you enter your age, OAS payments and income. 3. In 1996, the July OHS cheque was reduced by the "clawback" amount calculated on your 1995 tax return. The software program will determine if the deducted amount needs to be adjusted based on your 1996 return. Proposed changes to benefits for seniors may require you to decide if you want to continue receiving Old Age Security (and the Guaranteed Income Supplement) or switch to the new, non-taxable Seniors Benefit beginning in 2001. 4. If one spouse has a small income, CPP payments can be split as much as 50-50 to lower the tax paid by the spouse with the larger income. Many taxpayers aren't aware of this fact. 5. You can make CPP contributions if you're under the age of 69 and still working. This helps to minimize the tax owed and could boost CPP payments when you do retire. As well, if you are 69 and over, and your spouse is younger, you can contribute to an RRSP on behalf of your spouse, again minimizing taxes now and boosting payments later. The rules in this area are changing so if you were 69 or 70 at the end of 1996, you can still contribute to your RRSP until the end of 1997. 6. If your income is over $25,921 you will not be able to claim the full age credit of $3,482. Once your income reaches $49,134 the age credit disappears completely. 7. Medical expenses can be claimed for any period of 12 months ending in 1996, so it may pay you to combine, say, your dental work in November 1995 with the cost of medication for your upset stomach in Mexico in January 1996. Expenses must exceed three per cent of income of $1,614. 8. If you are disabled, don't forget to claim the disability credit. It's worth $1,100 in your pocket but is one of the most overlooked deductions. 9. Don't forget that age, pension and disability amounts can be transferred to a spouse if your income is low. 10. Charitable donations which total over $200 can be deducted at a higher rate, so it's often better for one spouse to make the claim rather than partners claiming separately. 11. If your eyesight isn't as sharp as it used to be, remember that large-print tax returns and guides are available from Revenue Canada. Garry Kalinski is chief operating officer of CanTax, a leading developer of income tax software for Canadians and Canadian tax professionals. He is based in CanTax's Calgary head office at 1- 800-265-3800. C.A.M.C. 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Don’t pay any more taxes than you have to. Call the office nearest you today to find out more about Doane Raymond. We love what we do. Through the courtesy of Maitland Valley Insurance, you may drop off or pick up your tax information at their office at 453 Turnberry Street, Brussels. If you should have questions or concerns, drop in or call our office for a copy of our free 1997 Tax Ups booklet. Doane Raymond ® Chartered Accountants Management Consultants Canadian Member Firm of Grant Thornton International Offices across Canada, including: 152 Josephine Street P.O. Box 1420 Wingham, Ontario N0G2W0 Tel: (519) 357-3231 Alan P. Reed CA Fax: (519)357-2452 . Partner