Case Study: The Case of the Missing Deduction

The tax return is the traffic circle where assets, income, and life come together.  The trouble is that February through April are hectic times for tax preparers and tax payors, and little time may be taken to review for missing information. 

A common mistake is missing the deduction of carrying costs such as investment advisory fees.  A non-registered investment account of $1.0 M with a fee charge of 1.2% will have $12,000 of investment advisory fees.  For a B.C. pre-retiree (younger than age 65) with a taxable income of $100,000 the income tax due would be $24,043.  But if the individual had deducted the investment advisory fees of $12,000 reducing their taxable income to $88,000, their income tax owing would only be $19,449.  That’s a significant savings.

Anyone with chronic or severe health issues, or who cares for such a person, should discuss the situation with their tax preparer annually.  In some cases, the debilitation is not so obvious, so leave that to the doctor to describe on the prescribed CRA form T2201B.  If the condition has gone on for a few years, you can re-file your tax returns back the last ten years.  A B.C. tax payor with $40,000 of taxable income will save $1,540 of income tax if he or she is eligible for the disability tax credit (2014 tax rates).  Tax relief is also applicable for caregivers and a myriad of medical expenses.  It is important to keep all medical receipts.

Don’t forget to carry-forward and apply your capital losses on investment property (ie. stocks, bonds, mutual funds, ETFs).  Capital losses can be carried back three years and forward indefinitely.  That annoying loss on that “sure-fire winner” can eventually be used against a gain made on a solid investment choice.  And, if you don’t use it during your lifetime, it can be applied against ordinary income in the year of death.  Small consolation perhaps, but don’t miss that deduction!

Why do we plan?

Knowing where you are translates into knowing where you’re going, and we hope to provide every client with the trust and confidence to navigate through the waters of their financial lives.

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