Time to think
about income tax

The Canadian Press

New Year's calls for more than resolutions.

It also means a deadline for charitable contributions, tax shelter investments and a grab-bag of other financial responsibilities, especially if you want to reduce your tax bill for 1996.

"The timing of income is very important at this time of year," says Colette Gentes-Hawn of Revenue Canada. You can actually decide in some cases if you want to be taxed on it this year or next year."

The key is balancing your deductible expenses and taxable income from '96 to '97 -- inasmuch as you can. In most cases, that has to be done by Dec. 31 to qualify for your 1996 tax return.

Take charitable donations, for example.

The first $200 of donations for the year gets you a 17 per cent federal tax credit, roughly 27 per cent when you add in provincial tax. All donations above $200 get you a credit of about 50 per cent from Ottawa and your province.

"You can get pretty charitable in December and get some pretty good tax breaks," says Michele Wood-Tweel of KPMG's Halifax office.

Steve Ranot, a partner in the Toronto chartered accountantcy firm of Marmer Penner, reminds people that charity contributions can be carried over for five years, often adding up to a bigger tax saving because of the higher tax credit for donations over $200.

"Let's say on average you make $300 of donations a year. You're better off really to claim $1,500 every five years rather than $300 every year."

And this year you can get credit for much bigger charity donations. The general limit on the deduction of charitable donations has been increased to 50 per cent of net income from 20 per cent.

Other possible key deductions include tuition fees, medical bills, business expenses, investment counselling fees and political contributions.

Medical expenses, for instance, can be deducted for any 12-month period that ends in the taxation year. But you can only deduct expenses that exceed three per cent of your net income.

That means, for example, that you may want to pay for your child's 1996 orthodontic work this year -- rather than spreading payments over two years -- to take advantage of your largest possible income tax deduction.

Even child-care expenses, when juggled, can yield savings, says Ranot.

If your babysitting bills are going to leap from $3,000 in 1996 to $8,000 in 1997 -- because you'll be working more, say -- it may make sense to prepay part of the 1997 total.

If paid before Jan. 1, it can then be added to your '96 tax bill and allow you to qualify for the full $5,000 in child-care expenses you can claim for each child under six each year ($3,000 for kids seven to 14).

But deductions are just half of the equation. When you draw your income can also mean tax savings.

If, for instance, 1996 has been a low income year for you it might be a good time to take some money out of your RRSP.

"Let's say you've been a student all this year and you look over the past year and say, `Whoa, I earned only $6,000 worth of income,'" says Gentes-Hawn.

"It's probably in my best interest to take out $4,000 from my RRSP because never in the foreseeable future would I be this little taxable."

And if your income is going to soar next year then you may want to defer some expenses.