This information below provides you with tax facts and tips to assist in your 2010 personal tax planning. It presents a quick overview of key items and strategies. Take time now to review your 2010 tax situation and call us for specific recommendations tailored to your needs. We will be pleased to work with you on these and other tax saving ideas.

EARNING YOUR INCOME

Minimizing Taxable Employee Benefits

If your employer provides you with an automobile, the taxable benefit is based on original cost and does not decrease as the car ages. Consider purchasing the car from the company by way of an interest-free loan from your employer and personally claiming depreciation on the car.

Interest-free and low-interest loans from your employer will generally produce a taxable benefit to you. Some of the benefit can be offset by an "interest" deduction if used for certain purposes. If not deductible, be sure to pay any interest payable on the loan for 2010 by January 30, 2011 to reduce or eliminate your taxable benefit.

Consider renegotiating home purchase loans in order to minimize taxable benefits by "locking in" the loan from your employer at a lower prescribed interest rate for a five-year term.

Tax Withheld at Source

Apply in advance to Canada Revenue Agency for a reduction in your employer's payroll withholdings from your salary if you will have large tax deductions available to you (e.g. RRSP contributions, tax shelters, interest, business losses, work-related car expenses and alimony).

Self-Employed

There are restrictions on the deductibility of certain expenses often incurred by self-employed individuals. If two offices are used, including one in the home, the costs related to the home office may not be deductible. In addition, only 50% of meals and entertainment expenses incurred for the business are deductible.

GST Rebate

Employees and partners who are eligible to deduct expenses from their employment or partnership income may be eligible for a GST rebate in respect of these expenses. If you claimed a GST rebate last year, the rebate must be included in your income this year.

Owner-Managers of Corporations

If you participate in the control of a family-owned or closely-held corporation, you may remunerate yourself by either paying salary or dividends, or a combination thereof, to achieve less overall tax.

Salary will qualify you and other family members active in the business for RRSP contributions, Canada Pension Plan contributions and child-care deductions. Dividends will not.

Dividends, on the other hand, may cost the family unit less in current taxes. Each family member, over 17-years old and receiving dividend income of $30,000 or less from taxable Canadian corporations, will pay little or no tax (provided they have no significant income from another source).

Consider paying a tax-free dividend from the capital dividend account of a private corporation on shares owned by high tax-bracket shareholders, or redeeming frozen value shares, tax-free, if warranted.

Tax Instalments

Generally, the government will advise you of your quarterly instalment requirements. Non-deductible, daily compound interest is charged by Canada Customs and Revenue Agency on late or deficient instalments. If your income sources vary or tend to fluctuate, adjust your instalments accordingly.

SAVINGS

Retirement Savings Plans (RRSP)

Your 2010 RRSP contribution must be paid on or before March 1, 2011 to be deductible in your 2010 tax return. RRSP contributions are limited to 18% of your 2009 income (subject to adjustment) to a maximum of $20,000 plus certain other special items. Earned income is primarily income from salaries, rentals, certain support receipts and income from unincorporated businesses. It is reduced by losses from the same sources.

If the maximum contribution room is not made this year, the excess may be used as additional contributions in future years. Your RRSP contribution limit for 2010 can be confirmed by reviewing your 2009 Notice of Assessment sent to you by the Canada Customs and Revenue Agency.

If you are a member of an employer pension plan, you may also contribute to an RRSP. But remember, your pension adjustment (reported on your 2009 T4 slip) limits your contribution.

Severance pay and retiring allowances will qualify, within limits, for special contributions to your own RRSP. These limits now exclude any contribution relating to years of employment after 1995.

A maximum $2,000 over-contribution to an RRSP is allowed without penalty if you are over 17 years of age. This $2,000 over-contribution, although not currently deductible, may earn tax-deferred income in the RRSP.

If you are turning 71 in 2010, you must convert your RRSP into taxable retirement income. Consider purchasing an annuity or converting your RRSP funds into a Registered Retirement Income Fund (RRIF). A final contribution to your RRSP must be made before year-end.

Spousal RRSP

Married individuals or those living in common-law relationships who have earned income or unused RRSP deduction room can contribute to a spousal RRSP until the person turns 71.

If you have earned income or unused RRSP deduction room and won't be able to contribute to your own (or a spousal) RRSP in future years because you and your spouse or partner will both have crossed the age 71 threshold by December 31, 2010, consider making a one-time over-contribution before that date. It will cause a small penalty now, but will get you a deduction later.

Tax Free Savings Account

Contributions to a TFSA and the interest on money borrowed to invest in a TFSA are not tax deductible. The income generated in the TFSA is tax-free when withdrawn.

Any individual 18 years of age or older may contribute a maximum of $5,000 (indexed to inflation after 2009) plus any unused TFSA contribution room from the previous year (check your Notice of Assessment for this amount).

RRSP Home Buyers Plan

Up to $20,000 can be withdrawn tax-free from an RRSP if the funds are used to purchase or build a principal residence, for the first time or for a disabled person, prior to October 1st of the following year. With proper planning, you can still get a deduction for RRSP contributions made in the year of the withdrawal.

RRSP Education Withdrawal

Funds can also be withdrawn tax-free from an RRSP to finance full-time training (or part-time training for students who meet the disability conditions) for you or your spouse or common-law partner. Up to $20,000 can be withdrawn over four calendar years, with an annual limit of $10,000 in any particular year.

Other Education Savings

All individuals, especially students with earned income, should file tax returns even if they have no tax to pay. The earned income will generate contribution room which can be carried forward indefinitely.

Non-refundable tax credits can be claimed for interest on student loans.

Refundable tax credits for tuition fees paid to private schools can now be claimed for Ontario tax purposes.

Registered Education Savings Plan (RESP)

Consider investing funds in an RESP for your children or grandchildren's schooling needs. An RESP is a trust arrangement that earns tax-free income to be used to fund the cost of a child's post-secondary education.

Contributions to an RESP are not deductible for tax purposes; however, withdrawals of capital are not taxed. The beneficiary is taxed on the income when withdrawn from the RESP for the purposes of funding his or her post-secondary education. While at school, the child tends to have relatively low sources of other income, and thus, the income is usually taxed at lower rates, if at all.

Federal government grants up to $400 annually are available for each beneficiary under the "Canada Education Savings Grant" (CESG).

INVESTMENTS

Capital Gains and Losses

While the $100,000 lifetime capital gains exemption has been eliminated, the $750,000 (less amounts already used of the $100,000) capital gains exemption for qualifying small business corporation shares and farm property remains in place. Planning to crystallize these amounts now may be warranted.

Your loss on loans to, or shareholdings in, Canadian small business corporations may qualify as an allowable business investment loss and be 50% deductible against your other income. You must review such investments prior to December 31st each year, as certain steps may be necessary to trigger the loss in the year.

Consider triggering paper losses on investments to shelter capital gains already realized this year and in the previous three years (other than for exempt gains on small business shares or farming property).

Consider claiming your principal residence exemption to shelter capital gains on cottages, ski chalets or foreign residences. The exemption is available on any property that you regularly inhabit, even if it is only for short periods. But remember, each family unit is limited to one principal residence.

Interest Deductibility

Where possible, maximize interest deductions by structuring or arranging your borrowings first for business purposes, second for investment purposes and last for personal use.

Where certain business or capital property (e.g. shares, but not real estate or depreciable property) is lost or ceases to earn income, interest incurred on related borrowed money continues to be deductible.

Investment Income

Consider deferring tax on interest income to the following year by investing funds for a one-year term ending in the next calendar year.

Remember that the after-tax yield on a 3.0% dividend on Canadian stock is equivalent to a 3.8% interest rate for high-taxed individuals.

Existing holding companies that have built up refundable dividend tax should consider paying dividends to recover this tax. Depending on the year-end of the company, it may have up to 24 months to enjoy the benefits of the tax refund before the shareholder is required to pay the personal tax on the dividend.

Income Splitting

Consider the following legitimate means of shifting income to family members whose taxable income is below the minimum tax rate level of $40,970. This will allow them to take advantage of certain non-transferable credits, as well as the lower tax rates.

Shift investment income by gifting money to children over the age of 17, or to a trust for their benefit, if you wish to maintain control.

Lend funds to, or purchase shares in, a corporation whose shareholders are your children over the age of 17.

Purchase appreciating assets in the names of your children regardless of their ages. Capital gains will be taxed in their hands, not yours.

With careful planning, future appreciation in existing capital assets can also be transferred to children.

It may no longer be advantageous to use a holding corporation for deferring taxes on investment income and capital gains because of higher corporate tax rates. However, such companies may still be attractive for splitting income with children over the age of 17.

Family trusts can no longer be used to make preferred beneficiary elections except in limited circumstances. This means that if you want income allocated to beneficiaries to be taxed in their hands (at lower marginal rates), such income will generally have to be paid out to them, or be paid on their behalf for private schooling, camps, etc. ("Kiddie Tax" rules may limit the benefits of allocating income to minor beneficiaries.)

Consider lending money to your spouse, common-law partner or children with actual interest payable at the prescribed rate. Earnings in excess of this rate will be taxed in their hands.

Lend money to your spouse or common- law partner to earn business income without attributing the income back to you.

Even if attribution of income applies on the investment of funds gifted or lent to your spouse or children, re-investment of the income from such funds will be taxed in their hands, not yours.

Consider exchanging income-producing assets (at fair market value, to avoid attribution) for assets that do not provide income (such as a home) with your spouse or common-law partner in order to shift income to the person with the lower tax rate.

Consider having the higher-income spouse or common-law partner incur all household expenses, thus allowing the lower-income person to acquire investments which could be taxed at a lower rate.

Consider directing a portion of your Canada Pension Plan income to your spouse or common-law partner who is taxed on that income.

Taxes at Death

An important part of your tax and financial planning should include the consideration of taxes that arise upon death. In general, all capital assets are deemed to have been sold immediately prior to death. This could result in substantial capital gains, and therefore, substantial tax liabilities. In addition, the value of your RRSP's and RRIF's at the time of your death must be included as income. One exception arises if the capital assets or RRSP's/RRIF's are inherited by a surviving spouse, whereby, the resulting capital gains and income inclusion are deferred until the death of the surviving spouse.

Careful planning could ensure that death taxes are minimized. This form of planning should involve a review of your will, existing life insurance coverage, consideration as to designate beneficiaries of RRSP's and other investment funds, the use of family trusts and charitable donations by your estate.

Charitable Donations

Time your donations of cash or other property before the end of the year so that your tax credits can be used for the current year. Donations made in 2010 may be claimed up to a maximum of 75% of net income.

Donations can be carried forward for five years. Since donations greater than $200 are eligible for larger tax credits, consider collecting several years of donations to obtain greater tax relief.

Consider donating marketable securities, such as bonds and shares listed on prescribed stock exchanges, where the property has appreciated. Only one-quarter (vs. one-half) of the gain will be included in your income.

Consider donating securities acquired under an employee stock-option plan. If the shares are donated in the same year the option is exercised and within 30 days of being acquired, the taxable stock-option benefit will be reduced from one-half to one-quarter.

Medical Expenses

Pay your outstanding medical and dental bills before the end of the current year to claim tax credits for the year.

Claim medical expenses paid for yourself, your spouse or your dependents. Since the deduction is reduced by 3% of net income, the spouse with the lower income will obtain the greatest benefit from making the total claim.

Premiums for private health insurance plans qualify for a tax credit, including medical insurance purchased by "snow birds" travelling south. Self-employed persons may now claim health and dental premiums as a deduction, within limits, from such earnings.

Caregiver Tax Credit

There is a $4,223 "Caregiver Amount" which may be claimed by individuals who provide in-home care for a parent or grandparent over age 65 or other infirm dependent relatives other than your spouse. The credit is reduced if the elderly or infirm relative's income exceeds $14,422.

Child Care

The maximum amounts deductible for child-care expenses are $10,000 for a disabled child, $7,000 for children under age 7 and to $4,000 for other eligible children (generally age 16 and under). In most cases, the spouse with the lower net income must claim the child-care expenses.

Moving Expenses

If moving within Canada to start a new job or business or to attend full-time post-secondary school, certain costs of moving are deductible for tax purposes. If sufficient income is not earned in the year of the move to absorb all the moving expenses, any excess may be deducted next year (to the extent of income earned from the new job next year).

Minimum Tax

Even the best planning strategies may leave you subject to special minimum tax on preferential income over a $40,000 basic exemption. Consider minimizing this special tax in all of your planning and how to recover it in the future.

Refundable Tax Credits

If your adult children have nominal income (e.g. full-time university students) ensure they file a tax return in order to claim the GST credit and/or the Ontario Sales and Property tax credit.

This information has been prepared for the general information of our clients. Specific professional advice should be obtained prior to the implementation of any suggestions contained in this publication.