How can you help clients minimize their taxes?

With just weeks left until general income taxes are due (deadline April 30), one financial advisor is offering advisors a few tips to ensure they help minimize the taxes their clients pay.

“Make sure that your clients take advantage of all the rules available to them,” Julia Easey, a financial advisor with Investment Planning Counsel in Simcoe, Ontario, told Wealth Professional, noting she focuses on getting to know her clients to be able to maximize the tax, as well as financial planning, advice that she can give them.

First, ensure that your clients are maximizing their tax-free savings accounts (TFSA).

“We find that they’re a little underutilized, but they become an extremely important tool in retirement, particularly if you need to take a big lump sum or something comes up,” she said. “You don’t want them to have a big tax if they’re taking that out of their RRSPs.

“We’re moving away from needing that RSP contribution to help with their income tax. We’re starting to look at ways of keeping their withdrawals in check,” she said, adding that advisors should ascertain which combination works best for their client’s long-term interest.

Each Canadian citizen, aged 18 and over, can put $6,000 in their tax-free savings account this year. That can accumulate, so they can now have a total of $81,500 in their TFSA account. Then, Easey said, advisors can work with them to decide how safely or aggressively that can be invested.

“That money is now tucked away in such a way that, if you need access to it, it’s not going to contribute at all to your taxable income,” she said.

Clients should also name a beneficiary, and there is no probate or tax on the TFSAs, as there is for RRSPs, for the client’s estate. But, Easey noted that advisors should ensure that clients don’t go over the limit as there is a 1% a month penalty if they do.

She also gets clients’ approval to access their information directly from the Canada Revenue Agency, so she knows exactly how much the client can contribute. Even if they don’t grant that permission, it’s important to regularly ask them about their contributions.

If clients have withdrawn some money from their TSFAs, they also can’t return it in the same year, but they can restore it to the account at the start of the following year, beginning January 1.

Advisors should also talk to your clients about RRSPs, pensions, and pension splitting rules.

If they have some runway before they retire, a married couple can do spousal RRSPS to move some of the income from the higher-income earner to the lower-income earner,” she said. “Once they’re retired, they may be able to pension share to get them into a lower tax bracket.”

Easey also ensures that clients’ investment statements include all the external fees since part of those can be written off on the clients’ tax return, which provides another income deduction.

“It’s a pretty significant assistance if it’s a large portfolio holder,” she said.

“Make sure that their money and their non-registered accounts are really organized well from a tax efficient perspective so that they can keep as much in their pocket as they can,” she said. “We can’t control what pandemics do, but we can help to control how much goes to the government.”