This teaching tour always ends with a feeling of inspiration about the important work these highly informed and engaged people do. As an education company, we are privileged to spur on their enthusiasm for personal and corporate taxation matters, and then watch the lights go on throughout the room as both tax and financial advisors start thinking about how working together can help them get better results and ultimately, peace of mind, for their clients.

Today, many Canadians still worry about their money and whether they have enough—for now and in the future. Some of that worry certainly comes from poor choices: too much credit, too little savings. But there is much advisors can do
this month to help overcome the financial hurdles. Here is what we heard on the tour:

1 – Many Canadians are behind in filing their tax returns. This means they are likely missing out on tax refunds and refundable credits like the Child Tax Benefit and GST Credit. What to do about it?

• Advisors should ask whether prior returns are missing and if so, encourage their clients to file to recover missed refunds or avoid penalties and interest charges.
• Advisors should inform clients that they are not building RRSP or TFSA contribution room and that can have a big impact on their ability to build and grow family wealth.
• They are likely also missing out on reporting capital losses, which help average income taxes downward by offsetting capital gains of the current year, three years back and indefinitely into the future.

2 – Most Canadians are still underfunding their RRSP contribution room, giving up double-digit tax savings which could be leveraged into TFSAs or used to pay down non-deductible credit card debt. Show your clients the follow of missing these important opportunities.

3 – Many Canadians are not benefiting from pension and investment income splitting opportunities that come from filing tax returns as a family. Tax and financial advisors can show their clients the benefits, working together.

Peace of mind—my definition of “affluence”—occurs when you stop worrying about whether your money will cover the necessities plus emergencies, and focus instead on how to use your money as a tool to build wealth for future generations.

If advisors can continue their important work in February to get more people focused on the twin goals of filing annual tax returns and minimizing their tax bills with fully funded RRSP contribution room, we could be more impactful in helping families build sustainable wealth for the future.

Evelyn Jacks is President of The Knowledge Bureau. A complimentary of The Knowledge Bureau Report can be found at www.knowledgebureau.com.

Most Canadians helplessly and with resignation, overpay their taxes every two weeks when their employers withhold personal income taxes remittances. The good news?  You can stop those bad financial habits! Options are available to reduce taxes paid at source for most people. You just have to make an effort to know the tax credits and deductions you are entitled to—don’t glaze over, this is important–and begin filing of a series of what I call “sister forms” used to reduce source deductions.

To put more of the first dollar you earn into your own pocket, sooner, here are four common forms to get to know before the end of the year to really make a difference in your cash flow:

1. The federal and provincial TD1, Personal Tax Credits Return, upon which tax credits such as the Basic Personal Amount ($10382 in 2010), spousal amount, amount for eligible dependant (equivalent-to-spouse), the child amount ($2101 for each child born in 1993 or later), the age amount, pension income amount, tuition, education and textbook amounts, disability amount, caregiver amount, amounts transferred from spouse or dependant and deductions for living in a prescribed northern zone. Make sure you complete this accurately if any of the above will be claimed on your tax return in 2010.
2. The T1213, Request to Reduce Tax Deductions at Source, mentioned below, which takes into account the tax benefits resulting from year round RRSP deductions, child care expenses, support payments, employment expenses on Form T777, carrying charges and other tax reductions like charitable donations, significant medical expenses, rental losses and so forth. That makes year end a very good time to do some tax planning in advance for 2010. If you understand the time value of money, and can budget your spending and savings, Form T1213 can ensure more of the first dollar goes to the right place—your pocket instead of the government’s.
3. The TDIX, Statement of Commission Income and Expenses for Payroll Tax Deductions, which will take into account expenses commission sales employees have in earning their commissions. These employees will deduct last year’s commission sales expenses calculated on Form T777 or this year’s estimated commissions from their salaries plus commissions to have tax deducted only on the net amount. It is really surprising how few people actually use this form.
4. The TD1-IN Determination of Exemption of an Indian’s Employment Income, which allows employers to exempt employment income from income tax deductions at source altogether in the following circumstances:  when the employee performs at least 90% of the employment duties on a reserve, both the employer and the employee reside on the reserve or in situations where the employee performs more than 50% of the employment duties on the reserve and the employee or the employer resides on the reserve. Finally if the employee’s duties are connect the employer’s non-commercial activities carried on exclusively for the benefit of Indians who reside on the reserve source deductions will be waived if the employer is an Indian band, tribal council or Indian organization controlled by one or more such bands or reserves.

Remember:  it’s your legal right and duty to pay only the correct amount of tax. When you begin your tax and financial planning for 2010 now—starting with paying only the correct amount of income tax instalments or withholdings–you can indeed make the moves to pull ahead and win financially.

Make it your mantra to keep more of every first dollar earned starting January 1, 2010. Happy New Year!

Evelyn Jacks is President of The Knowledge Bureau and the author of three new books available now from www.knowledgebureau.com: Essential Tax Facts 2010, Master Your Taxes and Make Sure It’s Deductible.

Link to Bio: http://www.knowledgebureau.com/Faculty.asp?tab=Meet&ID=1

To take control of the first dollar earned is easier for the self employed.  They pay taxes on the dollars left after the costs of earning revenues are deducted. Then quarterly tax instalments are remitted (the 15th of March, June, September and December); or in the case of farmers, once a year on December 31.

Instalment tax payments are required when net taxes owing at tax filing time exceeds $3000 in the current year or either of the immediately preceding two tax years. Therefore many seniors or even divorcees receiving spousal allowances can be required to make instalment payments. For those taxpayers, an accurate estimation of the current year’s taxes payable will result in a reduction of the final two payments of the year.

For the employed, however, the key is to minimize taxes required to be withheld by their employer at source.  With the average tax refund being in the vicinity of over $1400 per year (or close to $120 a month), the benefits of vigilance over required source deductions are exponential.

If you understand the time value of money—it’s worth more in your hands today because of its potential to earn money for the future–you will be poised to make better financial decisions all year long because you get to work with more money, first, and use it longer to accumulate and grow your savings. You will accumulate more wealth, faster, especially if you invest in a tax preferred vehicle such as a TFSA or RRSP.

However, Canadians are notoriously complacent about their source deductions, preferring to receive that “windfall” tax refund when they file their return. But, remember, providing an interest free loan to the government at the expense of compounding investment growth is not smart, for the reasons mentioned above. 
Worse, most taxpayers forget that income taxes paid are the largest revenue line item for government, and will be your largest lifetime expense for two reasons:  they erode income earned along the way, and they will erode accumulated capital too, at actual disposition or at death, in the absence of determined tax planning.

In short, your purchasing power is reduced both now and later, when you give up control of your precious hard earned, pre-tax dollars.

Next Time: The Good News!  How to keep more of every first dollar earned starting January 1, 2010.

Evelyn Jacks is President of The Knowledge Bureau and the author of three new books available now from www.knowledgebureau.com: Essential Tax Facts 2010, Master Your Taxes and Make Sure It’s Deductible.

Link to Bio: http://www.knowledgebureau.com/Faculty.asp?tab=Meet&ID=1