TORONTO, April 11, 2013 /CNW/ - With the tax return deadline approaching
on April 30, some Canadians may already be happily receiving refunds,
while others are disappointed because they have to pay. Regardless of
your situation, there are investing decisions that you can make to help
reduce the overall amount of tax you have to pay.
For many Canadians, tax season means a lump sum of money: according to
the Canada Revenue Agency, the average refund in 2011 was $1,580. The
amount of tax paid annually by Canadians depends on several factors,
including income, place of residence and deductions.
"Many Canadians think of a tax refund as a bonus, even though it's your
own money to begin with," says Cynthia Caskey, Vice President, Sales
Manager & Portfolio Manager, TD Wealth Private Investment Advice. "It
can be tempting to splurge on luxury items, but many Canadians need to
balance paying debt, saving for a child's education, and for
retirement. It's important to consider these needs when deciding how
best to spend your refund."
For Canadians who are eager to spend their refunds, Caskey offers the
following suggestions:
-
Pay down high-interest debt: This can include outstanding credit card balances, and should be your top priority.
Consider making a lump-sum payment, especially if the interest on the
debt is not tax deductible.
-
Save for a child's education: You can contribute to a child's Registered Education Savings Plan
(RESP), which will also potentially qualify them for a Canada Education
Savings Grant (CESG). The plan will earn tax-free investment income on
both your contribution and any government grants. Grandparents may
consider opening a family RESP plan, which can have multiple children
as beneficiaries.
-
Create a flexible savings strategy: A contribution to a Tax-Free Savings Account (TFSA) can be part of your
retirement savings strategy, and interest earned and investment income
is not taxed. Because you can withdraw the funds at any time, it is a
great option for use as an emergency fund. A good rule of thumb is to
have at least six months of living expenses set aside for
contingencies.
If you're hoping to reduce your taxes owed next year, Caskey offers the
following tips:
-
Take a year-round approach to tax savings: Reviewing your asset allocation with your advisor throughout the year
may help ensure your investments are allocated to maximize tax
efficiency. Consider contributing to your RSP regularly throughout the
year, instead of making a lump-sum contribution, to take advantage of
compound interest.
-
Invest efficiently outside RSPs/TFSAs: With your advisor, determine an appropriate asset mix and consider
investment solutions based on their tax efficiency. For example, Return
of Capital distributions may be received tax-free, but they reduce the
adjusted cost base of the investment. Also keep in mind that capital
gains are taxed at half the rate of interest income.
-
Plan not to get a tax refund in the first place: If you are getting a large tax refund, that means you are overpaying!
Consider making regular contributions to your RSP or speak with your
advisor about strategies to ensure you're being tax efficient.
"It's important to make tax-smart investment decisions appropriate to
your circumstances. There are several steps you can take to help get a
refund at tax time," adds Caskey. "You should carefully examine your
2012 tax return, income and investments, and start planning now for
improvements in the future. A little planning can go a long way, not
just for next year, but for years to come."
About TD Wealth Private Investment Advice
TD Wealth Private Investment Advice is a division of TD Waterhouse
Canada Inc., a subsidiary of The Toronto-Dominion Bank. TD Waterhouse
Canada Inc. - Member of the Canadian Investor Protection Fund.
About TD Bank Group
The Toronto-Dominion Bank and its subsidiaries are collectively known as
TD Bank Group (TD). TD is the sixth largest bank in North America by
branches and serves approximately 22 million customers in four key
businesses operating in a number of locations in key financial centres
around the globe: Canadian Personal and Commercial Banking, including
TD Canada Trust and TD Auto Finance Canada; Wealth and Insurance, an
investment in TD Ameritrade, and TD Insurance; U.S. Personal and
Commercial Banking, including TD Bank, America's Most Convenient Bank,
and TD Auto Finance U.S.; and Wholesale Banking, including TD
Securities. TD also ranks among the world's leading online financial
services firms, with more than 9 million online customers. TD had
CDN$818 billion in assets on January 31, 2013. The Toronto-Dominion
Bank trades under the symbol "TD" on the Toronto and New York Stock
Exchanges.
SOURCE: TD Bank Group
