Got a tax refund? Had to pay?

TD Waterhouse experts provide tips to help Canadians get the most out of their tax return

TORONTO, May 19 /CNW/ - Now that the filing deadline has passed, some Canadians are enjoying large refunds while others are disappointed because they had to pay.  Regardless of your situation, everyone has the same goal in mind: to minimize the amount of tax you have to pay.

The amount paid by each Canadian taxpayer annually depends on a number of factors, including: income, place of residence and deductions.  Two TD Waterhouse experts have teamed up to offer tips for Canadians who are eager to spend their refund, and suggestions for those who had to pay, so they can make changes for a better result next year.

You have received your refund…now what should you do with it?

"Many view a tax refund as a mini windfall and are tempted to splurge on the latest electronic gadget or a summer vacation. While this may provide instant gratification, there could be better alternatives for these funds that will benefit you not only now, but also in the future," says Patricia Lovett-Reid, Senior Vice President, TD Waterhouse. 

1. Pay down debt
If you have high-interest debt, such as outstanding credit card balances, that should be your number-one priority.  Also, if you have a mortgage with a significant outstanding balance or long amortization period, consider making a lump sum payment.

2. Create or top up an emergency fund
"You never know when life could throw a curve ball, so we should all aim to have at least six months of living expenses set aside for contingencies," advises Lovett-Reid.  A good place to keep these funds is in a Tax-Free Savings Account (TFSA) where you can contribute up to $5,000 per year.  The amount withdrawn is added to TFSA contribution room in the following year and carried forward indefinitely.

3. Boost your RSP and/or RESP contributions
Not only are Retirement Savings Plan (RSP) contributions tax deductible, but the return earned in an RSP is also not taxable while the funds remain in the plan. If you took out an RSP loan, consider repaying the loan with your tax refund to minimize interest payments.

If you have children, you can also contribute to a Registered Education Savings Plan (RESP), which will help fund your child's post-secondary education and potentially qualify you for a Canada Education Savings Grant (CESG).  The plan will earn tax-free investment return on your contribution and any money received from the grant.

You had to pay…so what can you do differently for a better result next year?

"There are a number of steps you can take to help obtain a refund at tax time.  You should carefully examine your 2010 tax return, income and investments, and start planning now for improvements next year," says Charley Tsai, Vice President, Wealth Planning Support, TD Waterhouse.

1. Divide Income
"Income splitting is one of the most significant things a family can do to reduce their overall tax payments," says Tsai.  "By shifting income or capital gains from a higher-income earner to a lower-income earner, the same amount of income may be taxed at a lower rate."

Different methods for dividing income include: spousal RSPs, helping your spouse/partner contribute to their TFSA and payment of reasonable wages to family members through a business.  In addition, you can also consider a prescribed rate loan to a lower-income spouse/partner, allowing him/her to invest and earn income that may more than offset the interest cost.

"These transactions can be complex, so I encourage investors to talk to an advisor.  They can engage the appropriate professionals so they offer the most benefit," says Tsai.

2. Review your debt and your investment portfolio
If the interest on your debt is not tax deductible, and you have other non-registered investments, consider selling some or all of these investments and using the money to reduce your debt. Then re-borrow the money to replace your non-registered investments. This may create an interest deduction in 2011 onward since the interest on this new debt may be tax deductible.

Take a close look at your investments to ensure they are tax efficient.  Different types of investment income attract different tax rates and this can have an impact on the after-tax return from your investments.  For example, eligible dividend income received from Canadian public corporations is taxed at a lower rate than interest income.  If your investment portfolio generates different types of investment income, you may want to consider holding your interest income investments (e.g. GICs, bonds) inside an RSP where possible to shelter this income from taxation.

3. Invest in your community and the causes you believe in
Charitable donations support those in need - but they can also help you at tax time through tax credits for your contributions.  If you donate qualified securities such as publicly traded stocks, bonds or mutual funds to registered charities, there is no capital gains tax on any gains from the disposition of these securities.

"You can donate qualified securities directly to many charities, realize their full value as a charitable donation, and eliminate all capital gains on the transfer of these securities.  If you were to sell such appreciated securities yourself and donate the proceeds of the sale to charity, you would also realize their full value as a charitable donation, but you would be taxed on any gain," says Tsai.

About TD
The Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank Group (TD or the Bank). TD is the sixth largest bank in North America by branches and serves approximately 19 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 Insurance; Wealth Management, including TD Waterhouse and an investment in TD Ameritrade; U.S. Personal and Commercial Banking, including TD Bank, America's Most Convenient Bank; and Wholesale Banking, including TD Securities. TD also ranks among the world's leading online financial services firms, with more than 6 million online customers. TD had CDN$616 billion in assets on January 31, 2011. The Toronto-Dominion Bank trades under the symbol "TD" on the Toronto and New York Stock Exchanges

TD Waterhouse represents the products and services offered by TD Waterhouse Canada Inc. (Member of the Canadian Investor Protection Fund), TD Waterhouse Private Investment Counsel Inc., TD Waterhouse Insurance Services Inc., TD Waterhouse Private Banking (offered by The Toronto-Dominion Bank) and TD Waterhouse Private Trust (offered by The Canada Trust Company).

SOURCE TD BANK GROUP

For further information:

or to schedule an interview with Patricia Lovett-Reid or Charley Tsai, please contact:

Ali Duncan Martin
TD Bank Group
(416) 983-4412
Ali.DuncanMartin@td.com

Karen Williams / Steve Presant
Paradigm Public Relations
(416) 203-2223
kwilliams@paradigmpr.caspresant@paradigmpr.ca

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