The tax-filing deadline is April 30. So you still have time to take advantage of a variety of lesser-known credits, deductions, and transfers that the Canada Revenue Agency doesn’t exactly advertise with ringing bells and flashing lights. Here are three of my favourites of particular interest to higher-bracket taxpayers and investors.
1. The Equivalent-to-Spouse Tax Credit
This tax credit could add up to at least a $1,500 tax saving, once you take federal and provincial taxes into account. You may be able to claim it if:
• You are divorced or legally separated (not supported by your spouse), and you support a child under 18 in your home.
• You are a single parent with a child under 18 living with you.
• You are single and support a brother or sister under 18 living with you.
• You support an elderly parent who has moved in with you.
To claim the credit, you must be either unmarried or legally divorced, maintain and live in your own residence, and have a qualifying dependant who lives with you and is wholly dependent on you for support during the year (the dependant may live away while attending school).
2. Transferring Dividends to Your Spouse
If your spouse has little or no income except for taxable dividends from Canadian companies, you may be able to reduce the family tax bill by including your spouse’s dividends in your income.
While that may seem totally counterintuitive, doing so will help reduce your tax if your spouse can’t make full use of the Dividend Tax Credit. However, you may do this only if the transfer of dividends increases the claim you make for your spouse as a dependant. Moreover, if you do decide to transfer dividends, you have to include all of your spouse’s dividend income from Canadian companies.
These strategies can be effective in the right circumstances. But everyone’s tax situation differs in the particulars. The best way to determine whether a transfer would work for you is to consult a qualified tax specialist.
3. Claim Reserves for Capital Gains
If you have sold assets in 2014 and realized a capital gain, in some cases you may be able to claim a capital gains reserve to defer recognition of that capital gain for tax purposes.
You can claim a reserve if you sell a property but do not receive all of the proceeds right away. An example of this would be selling appreciated shares and taking back a promissory note as consideration.
Under the reserve rules, you need only recognize one-fifth of the gain in the current and each later year (cumulatively), so that the entire capital gain will be accounted for by the fourth year after the year of sale.
If you are not able to claim a reserve because you received all of the proceeds immediately on the sale, look to see if you have a capital loss carryforward balance from previous years that can offset your capital gain.
Courtesy Fundata Canada Inc. ©2015. Samantha Prasad, LL.B. is Tax Partner with Toronto law firm Minden Gross LLP. Portions of this article appeared in The TaxLetter, published by MPL Communications Ltd. Used with permission.