Now that we are in the fall season, it is a good time to ensure that you have done everything to minimize your 2012 personal income taxes.  We have highlighted some common areas that can create potential tax savings or deferrals.

RRSP
The registered retirement saving plan is one of the best ways to shrink your income tax cost.  Your RRSP contribution limit is generally 18% of your prior year income with a maximum contribution room of $22,970 for 2012.  The easiest way to determine your 2012 contribution room is to review your Notice of Assessment of your 2011 personal tax return from CRA.  Individuals who are in the highest marginal bracket of 47.97% can create tax savings of almost $480 for every $1,000 contributed to their RRSP.

TFSA
A tax-free savings account allows you to earn investment income tax-free; if you haven’t already setup a TFSA, now is the perfect time.  Starting in 2009, you were able to contribute up to $5,000 per year to your TFSA.  Beginning in 2013, the contribution limit will increase to $5,500.  If you are just currently opening an account, you can contribute up to $20,000.  Although none of the contributions are tax deductible, any income or capital gains earned in the TFSA are not taxable even when you withdraw the funds.  You can also give funds to your spouse to use up their contribution room without any worry of attribution of the income.

NEW ONTARIO TAX BRACKET
If you expect your income in 2012 and beyond to exceed $500,000, you may want to consider some tax planning options in the 2012 year.  Tax rates for Ontario residents earning over $500,000 will be going up again in 2013 by almost 2%.  There may be strategies suited for individuals who are already in the top tax bracket and expect to be again in 2013.

TAX LOSS SELLING
If you have unrealized capital losses in your investment portfolios then you should review your situation with your financial advisor to determine whether triggering the losses prior to December 31, 2012 will generate any tax recoveries to be applied against other capital gains in 2012 or prior years.

FAMILY LOANS
The CRA’s prescribed interest rates continue to stay at an all-time low of 1%.  If you have a family member that is a low-income earner, you should consider providing them a loan to earn investment income.  Normally any amount earned would be attributed back to you, but if the loan is structured properly with a written agreement, repayment terms and a rate equal to or greater than CRA’s prescribed rates, attribution will not apply.

If properly implemented, locking in a 1% rate loan to a family member could shift income that you might be earning at a higher tax rate to a lower-income earner; of course for this to be effective the investment would have to have a rate of return of 1% or higher.

INCOME SPLITTING
In cases where your children or your spouse participate in your family business, you are entitled to pay them for legitimate work done.  If they are in a low tax bracket then remunerating children and spouses can save a significant amount of tax.

MOVING TO ANOTHER PROVINCE
Are you or a family member moving to another province?  Generally, you will be taxed in your province of residence as of December 31, 2012.  If you are moving to a province with a lower tax rate, it will be beneficial to move there before December 31, 2012.  However if you are moving to a province with a higher tax rate, it will be better to wait until after December 31, 2012.

AUTOMOBILE USE
If you use an employer provided vehicle you may have received a taxable benefit during 2012, known as the standby charge and operating cost benefit.  For 2012 the taxable benefit for operating costs is $0.26 per kilometre.  The standby charge is based on the value of the vehicle and personal use.  This taxable benefit may be reduced by amounts you reimburse your employer for the personal use of the vehicle or if you can show your personal use is less than 50% and 1,667km per month.

MILEAGE CHECK
If you do use an employer provided vehicle or use your own vehicle for employment related purposes you need to keep an accurate mileage logbook.  The logbook will provide evidence of personal vs. business use of the vehicle and possibly allow further deductions from your personal taxes.  In the case where you are using your own vehicle for employment purposes, your employer will have to sign a T2200 form noting that the expenses were incurred as part of your employment.

DUE DATES AND INSTALLMENTS
The above tips can be effective in reducing your tax liability, if they are done in a timely manner.  To ensure that you are getting the full benefit from your payments and deductions, keep in mind the following due dates:

December 31, 2012:
Donations / charitable gifts    Children’s fitness tax credit
Medical expenses    Children’s art tax credit
Child and spousal support    Interest and management fees on investments
Interest on student loans    Political contributions
January 30, 2013
Interest on family loans    Interest on loans from your employer
February 14, 2013
Reimbursement of personal car expenses to your employer for personal use of a company owned/leased vehicle to reduce your taxable operating benefit
March 1, 2013
RRSP contributions    RRSP repayments to HBP and LLP

Make sure you make your 2012 instalment payments on time to avoid interest and penalties on filing.  The combined rate of interest and penalties on insufficient instalments currently totals 7.5% of the tax owing, which is the same as paying 14% before taxes.

REMEMBER…
All of the above tax planning points are well known to most people and are easy to implement.  However, in our busy lives, we can end up paying a lot more tax than we need to if we neglect to deal with the small issues.