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Five year-end tax tips

Special to The Globe and Mail

Heading towards the close of 2011, Canadians are likely focused on holiday shopping. But prudent citizens may also want to take the time to make sure they are on top of their income tax planning.

Carol Bezaire, vice-president of tax and estate planning for Mackenzie Investments, highlights some notable changes that might affect your taxes this year, as well as some tax benefits you might be missing out on.

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1) If you have a disabled family member: Although the Registered Disability Savings Plan (RDSP) has been around since 2008, it's not used nearly as much as it could be, says Ms. Bezaire. ( According to Statistics Canada, one in seven Canadians lives with a disability.)

To qualify for an RDSP, disabled individuals can apply online at Canada Revenue Agency with a doctor's note stating the disability. It functions like a RESP that turns into a RRIF -- contributions are not tax-deductible and not included in income when paid out, and investment income earned in the plan accumulates tax-free.

As well, the government will match up to $3,500 per year in RDSP contributions through the Canada Disability Savings Grant and will pay up to $1,000 per year into RDSPs through the Canada Disability Savings Bond for low-income Canadians.

As of July of this year, individuals that are supporting a disabled person can roll up to $200,000 of their RRSP or RRIF into the RDSP for this person on a tax deferral, Ms. Bezaire says. "It saves money for the estate and it protects the individual from the clawback of their provincial benefits."

2) If your child has received a scholarship: Students who were awarded scholarships for post-secondary programs may be eligible for scholarship exemption if the program leads to a doctoral, masters or bachelor degree, or a college diploma.

"It used to be the first $3,000 of the scholarship was tax-exempt and the rest was taxed as income," says Ms. Bezaire, "But under the last budget, they have exempted the whole scholarship, which really helps because a lot of students need everything they can get to pay for school."

3) If you're a parent sharing custody: Parents who share equal custody may now each receive their half of the Canada Child Tax Benefit and Universal Child Care Benefit.

"Normally the custodial parent would get the tax benefit, but the trend is that you have shared custody," says Ms. Bezaire. "Now you can split the Child Tax Benefit, so each parent for the time they have the child is going to be able to claim. It doesn't duplicate anything, but it creates a bit more equity beween the supporting parents."

4) If you're planning to withdraw from your TFSA in the new year: If you need to take money out of your Tax-Free Savings Account, do it before December 31st or you won't be able to replace it until 2013, says Ms. Bezaire. "If you wait until January, the withdrawal doesn't count until the following year in your contribution limit," she says. "A lot of people miss that and they end up overcontributing and they've got that one per cent overcontribution penalty."

Confused? Here is an example: The rules state that you can only contribute $5,000 per year to a TFSA. Jane Doe contributes $5,000 to her TFSA in January 2011, then takes out $3,000 in March to pay for a trip abroad. She comes into some extra funds in October and decides to add $3,000 back into her TFSA. But now she's overcontributed for 2011, and would incur a 1 per cent overcontribution penalty. To avoid the penalty, Jane would have to wait until 2012 to deposit the funds.

5) If you're self-employed: Canadians who are their own boss may be able to benefit from the new Employment Measure for Self-Employed People. It's a program that provides benefits for maternity and parental leave, illness and care-giving for a sick family member. Premiums are based on your earnings, and can be paid with your income tax return.

Once you start paying premiums, you can cancel at any time - or go back to regular EI if you take a job with an employer. "But once you take benefits, you have to continue to contribute to this EI program for the rest of your working life," says Ms. Bezaire.