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[RRSPs - A Great Tax Shelter]

Registered Retirement Saving Plans (RRSPs) are one of the last legal tax shelters available to Canadians. With the start of a new year, many Canadians are focusing on how much they should contribute to their RRSP. Here are some tips to remember if you are planning to make a contribution in the first 60 days of 2008:

  • 2008 is a leap year so the deadline for RRSP contributions is February 29, 2008
  • The Federal Government recently extended the age limit for holding RRSPs from 69 to 71
  • The amount of RRSP contribution room you have available is included on your Notice of Assessment from your 2006 tax return. If you can't find your notice, you can contact the Canada Revenue Agency for your limit
  • Unused RRSP contribution room can be carried forward for future use by a taxpayer. It means there will be more room available when a taxpayer moves into a higher tax bracket
  • Pay yourself first. RRSP contributions should be considered a regular line item in your monthly budget
  • Ask your employer if they have RRSP matching programs. It can really help boost your contributions if you qualify
  • You can borrow money from your RRSP without being taxed under the Home Buyers Plan or the Lifelong Learning Plan. The money must be repaid according to the program guidelines

Smaller monthly payments throughout the year can be more advantageous than lump sums. For example, if you buy mutual funds or stocks over the course of the year you are taking advantage of cost averaging, as unit prices can fluctuate; rather than purchasing all of your units at the same price.

If you want to make an RRSP contribution to help offset your tax payable, ask an H&R Block tax professional for help. As a general rule, RRSP contribution could reduce your tax payable anywhere from 20 to 53 percent from the amount contributed - depending on which province you live and the amount of income earned. H&R Block tax professionals can estimate your tax payable and help you calculate how your RRSP contribution can help.

 

[Letter to the Editor]

Dear Cleo,

I read with interest the recent article about the Child Fitness Credit in Insight. As a parent, I am still confused about the receipts I have collected so far.

The local recreation centre sent me two receipts for the skating classes my daughter took in the spring. The classes were for six weeks each and the second session started immediately after the first session. So the two receipts total 12 weeks.

Your article stated that the program must last eight weeks. Will my receipts be accepted by the Canada Revenue Agency since it was really a 12-week program?

Ingrid B.

 

Thank you for your question, Ingrid.

The Children's Fitness Credit has very specific guidelines around the types of programs and activities that qualify. The conditions are based on the recommendations of a panel of experts the government consulted when creating this credit.

Based on the requirements laid out in tax law; a single class must run for a minimum of eight weeks and the child must attend at least once a week. Your daughter attended 12 weeks, consecutively; this was comprised of two classes of six weeks each. One of these classes, on their own, does not qualify for the Children's Fitness Credit.

You could file your 2007 tax return and include these skating receipts and allow the CRA to make the final decision. The worst case scenario would be if the receipts were allowed and the tax refunded initially but upon further review, the CRA disallowed them. This would mean your tax return would be reassessed and you would have to return any money related to claiming this credit. There may also be interest involved with the amount owing.

However, the Child Fitness Credit is a non-refundable credit so once it is calculated, the maximum $500 claim actually results in a $77.50 reduction on your taxes. You may decide to take the risk of claiming the receipts.

The CRA has a checklist that you may find helpful in determining if the program your child is participating in may qualify. Click here to view the checklist on the CRA website.

 

[New Tax Cuts Could Mean A Tax Refund]

In December's issue of Insight, we discussed the Economic Statement in New Tax Cuts Could Mean A Tax Refund. There may been some confusion regarding the minimum tax rate for 2007. Here is a clarification of the issue:

There were two different tax rates in 2006. The first six months of the year - January to June - the minimum tax rate was 15 percent. From July to December, the minimum tax rate was 15.5 percent.

For 2007, the 15.5 percent minimum tax rate was in place until the Economic Statement by Finance Minister Jim Flaherty on October 30, 2007. The announcement retroactively reduced the minimum tax rate by 0.5 percent. This retroactive reduction to January 1, 2007 means the minimum tax rate for the 2007 tax year is 15 percent.