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.
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