101 Tax Secrets For Canadians: Smart Strategies That Can Save You Thousands

366 Pages·2010·1.102 MB·English

by  Tim Cestnick

Also by Tim Cestnick
A Declaration of Taxpayer Rights
Your Family’s Money
Death & Taxes
Winning the Education Savings Game
Winning the Estate Planning Game
The Tax Freedom Zone
Winning the Tax Game

Copyright © Tim Cestnick, 2010
All rights reserved. No part of this work covered by the copyrights herein may be reproduced or used in any
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The information contained in this book is not intended to serve as a replacement for professional financial or other
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disclaim any and all liability arising directly or indirectly from the use or application of any information contained
in this book. A financial or other professional should be consulted regarding your specific situation.
Library and Archives Canada Cataloguing in Publication Data
Cestnick, Timothy J., 1966-
101 tax secrets for Canadians : smart strategies that can save you thousands.
Annual.
2007-
ISBN: 978-0-470-67656-1 (2010 edition)
1. Tax planning—Canada—Popular works. 2. Income tax—Law and legislation—Canada—Popular
works. I. Title. II. Title: One hundred and one tax secrets for Canadians.
KE5682.C47 343.7105'205 C2007-906441-5
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Cover design: Natalia Burobina
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For tax updates, visit www.timcestnick.com
Contents
Acknowledgements...............................................vii
Tax Planning Tip Sheet ........................................... viii
Foreword: Stepping Up to the Plate ...................................xv
Changes Making the Headlines .....................................xix
Chapter 1 – Pre-Game Warm-Up: The Basics of Tax Planning ................1
Playing by the Rules .............................................2
KnowingtheNumbersGame.......................................3
Timing Your Taxes ..............................................7
Fighting When You’re Right ......................................12
Chapter2–Home Team Advantage:Tax Planning for the Family ..............18
Splitting Family Income ..........................................19
Educating the Family............................................40
Heading for Home .............................................49
Claiming Family Care Costs ......................................53
Surviving Separation and Divorce ..................................59
Chapter 3 – Signing with the Team: Strategies for Employees ...............69
Optimizing Employment Benefits...................................70
Claiming Employment Deductions..................................89
Driving Automobiles on the Job....................................94
Deferring Compensation ........................................101
Calling It Quits ...............................................105
Chapter 4 – Becoming a Free Agent:Strategies for Self-Employment . . . . . ......108
Jumping on the Bandwagon......................................109
Choosing Your Business Structure ................................112
Claiming Business Deductions ....................................119
AddingUptheTaxHits.........................................133
Chapter5–Bulls,Bears, and Baseball:Strategies for Investors ..............136
Investing in a Tax-Smart Manner..................................137
Understanding Tax-Smart Strategies ...............................159
Sheltering Income with Life Insurance ..............................174
Borrowing to Invest: Leveraging ..................................180
vi contents
Chapter 6 – Earning the Gold Glove: Strategies for Retirement..............190
Understanding RRSP Basics......................................191
Contributing to Your RRSP......................................201
Withdrawing from Your RRSP ...................................219
Benefiting from RRIFs and Annuities...............................230
Understanding Registered Pension Plans ............................238
Chapter7–AmericanLeagueRules:UnitedStates’Connections .............243
Reporting Your U.S. Income .....................................244
Profiting from U.S. Real Estate ...................................246
Cutting Your Gambling Losses ...................................251
Staying Canadian .............................................253
Considering U.S. Estate Taxes ....................................255
Chapter 8 – A League of Their Own: Provincial Tax Issues.................257
Walking to a Different Drummer..................................258
Chapter 9 – Bottom of the Ninth: Planning for Your Estate.................271
Knowing What to Expect........................................272
Giving It Away Today ..........................................273
Giving It Away at Death ........................................276
Providing Tax-Free Death Benefits.................................287
Planning for U.S. Estate Taxes....................................290
Glossary of Abbreviations.........................................295
Tax Facts.....................................................296
Marginal Tax Rates for 2009.....................................296
Federal Personal Tax Rates for 2009 ..............................302
Provincial Personal Tax Rates for 2009 ............................303
Federal Personal Tax Credits for 2009..............................303
Additional Federal Tax Credits ...................................304
Canada Pension Plan Contributions 2009 ...........................305
Employment Insurance Premiums 2009.............................305
Dividends....................................................305
Old Age Security Benefits........................................306
Canada Pension Plan Benefits.....................................306
RRSP Contribution Limits.......................................307
MinimumAnnualRRIFWithdrawals...............................307
Index........................................................309
Dedication
I dedicate this book to my wife, Carolyn, my son Winston (my Big Guy), my daughter
Sarah (my Sweet Pea), my son Michael (my Little Guy), and Ginger, our dog.
Acknowledgements
There is something about reaching the twelfth anniversary of this book that makes me
feel old. Okay, maybe old isn’t the right term. Let’s try seasoned. You know, experi-
enced. It’s sort of like having a child who is on the cusp of their teen years. Actually, my
son Win will be there soon. A lot has changed in the world of tax planning since the
first edition of this book. In fact, a lot changed in 2009. The good news? This book
reflects those changes.
It’s always the case that the people around me make me better at what I do. And
this book is better today because of the work they do. We share challenges, ideas and
develop strategies together. This book reflects some of those. I’m thinking specifically
of my staff at the WaterStreet Group Inc.—a group of CAs, lawyers, CFAs, MBAs
and CFPs who all “know their stuff.” I’d like to thank Leigh Vyn, Michael White,
Audrey Robinson, Jacob Kim, Jeremy Nicholls and Mike Stulp. I’d also like to thank
Mike Kray for the thought-provoking dialogue we regularly engage in. This is a high-
octane group of professionals I can turn to for assistance. I must also thank my assis-
tant, Kathy Stradwick, for being so organized that I can’t miss a deadline—although
I often try.
I would also like to thank the staff at John Wiley and Sons Canada, Ltd. who have
shown confidence in me as a financial professional and author. In particular I want
to thank Karen Milner and Robert Harris for their enthusiasm and support in this
work.
Finally, I want to thank my wife and kids. Carolyn continues with a willingness to
see me locked away to work on this book and other things, and to be the brunt of
many embarrassing—but mostly true—stories that I write in my regular column in the
Globe and Mail. My kids also deserve a medal for the time I have spent away from
them to work on this book.
Tax Planning Tip Sheet
This Tax Planning Tip Sheet has been designed to simplify your tax planning. It
lists all the tax-saving tips that I discuss throughout the book. Start by reading a
chapter, then come back here to review the tips for that chapter. For each tip,
simply answer the question: Can this apply to me? That is, even though a strategy
may not currently apply to your situation, can you make changes to your life to
permit you to apply the strategy? Check Yes next to those strategies that either
apply or could apply if you were to make certain changes to your life—your Fact
Situation. If you’re not sure about a strategy, check Not Sure. Once you’re done,
take a closer look at the Yes and Not Sure answers. These strategies will form the
foundation of your tax plan.
Don’t worry about putting all the ideas into practice in a single year. It’s not
going to happen. Choose up to four to implement this year. Keep the other ideas on
file and think about setting them in motion next year or the year after. And by the
way, I highly recommend that you visit a tax pro with your Tax Planning Tip
Sheet, just to make sure you’re on the right track. A tax professional will help you
to do things right.
Tim’s Tips Strategy Can This Apply to Me?
Yes No Not Sure
Chapter 1. Pre-Game Warm-Up: The Basics of Tax Planning
•• •• ••
1. Avoid taxes like the plague, but don’t evade them.
2. Understand this thing called your marginal
•• •• ••
tax rate.
3. Know the difference between a deduction and
•• •• ••
a credit.
•• •• ••
4. Always wait to trigger a tax hit.
•• •• ••
5. Pay your taxes on time, but not ahead of time.
•• •• ••
6. Think of taxes when big things happen in life.
7. Dispute your assessment when you think
•• •• ••
you’re right.
8. Consider requesting relief when circumstances were
•• •• ••
beyond your control.