Tax Breaks for Single Taxpayers are Few and Far Between

Are singles who live alone without dependants treated fairly by the tax system? They are an economic unit on their own, assumed to have more disposable income because they don't support family members. Is this true or fair? Don't forget that the cost of living can be shared by couples and families, while singles have to bear the full weight of housing, food, transportation and other living expenses on their own. The last time I checked, the cost of a one bedroom apartment is not just half the cost of the two bedroom model!

It is not often that we see a new deduction or credit for single taxpayers. Many initiatives are aimed at families, especially those with children, and no one can argue that this isn't important. However, it was interesting to note that when Nova Scotia presented its Financial Measures (2011) Act on April 15th of this year, there was a previously unannounced low income tax deduction aimed to assist a widowed person in the year of her spouse's death.

Leveling the playing field for Canadian singles would not be difficult óa federal Singles Cost of Living Equity Credit, for example, might take up some of that slack. The province of Quebec has a tax credit for singles called the Amount for a Person Living Alone, and an additional credit for single parents.  Perhaps it is time for the tax system to recognize the cost of flying solo.

More important, consider that many singles have unofficial roles caring for family members. They may provide support to parents, uncles, aunts, nieces and nephews that often is not recognized by the tax system. It is important that single taxpayers in these situations seek out professional financial and tax advice to maximize the few opportunities that will reduce the tax burden. Following are strategic planning tips to consider:

Income: For singles, there is no income splitting with family members, but sharing with the communities as a philanthropist is recognized by the tax system. Transferring your accrued capital gains in publicly traded shares to your favorite charity will result in tax free gains, as well as a tax credit for the donation itself. So diversification of income sources is importantóincome from employment, self-employment, interest, dividends, capital gains, pensions all layered in varying amounts can often be timed to average down overall tax rates in your lifetime.

Pension splitting with Public Plans: There is certainly a disadvantage to single taxpayers here as there is no income splitting with spouses when CPP/OAS benefits are paid. Strategies to counteract this imbalance include taking the CPP early so that you average out the tax on this income over a longer period; by the time OAS kicks in a smaller CPP benefit may also help singles avoid OAS clawbacks. The tradeoff is that the monthly CPP benefit is smaller, although it is received over a longer period of time.

Private pensionsóRPP, RRSP, RRIF: Consider taking benefits out of them earlier, too, and over a longer period of time to average out the tax. Reinvest in non-registered accounts to make the strategy for tax free gains part of your charitable giving plan. Also remember the TFSA is a great way to earn tax free income.

Other Capital: Saving for a home is very important in order to tap into tax exempt gains throughout your lifetime. Singles are nimbler (they don't have to ask anyone about moving!), so they can own sequential homes, potentially accumulating lots of tax free gains along the way. But be careful of adventure or concern in the nature of trade rules ñ CRA could consider you to be in the business of buying and selling real estate and challenge your principal residence exemption.

Deductions: RRSP is key to tax savings and the building of a greater capital base, and childless singles should be able to save more, in theory. There may be an argument for building up capital outside the RRSP (with TFSA, homeownership, for example) in years when income is lower; as too much in the RRSP pot at the end of life will be heavily taxed. But if you are a higher earner, remember that one way to free up more capital is to make the RRSP contributions and invest the double-digit tax savings.

Other tax deductions for singles include moving expenses, employment expenses, accounting expenses and union dues. Make sure you maximize them.

Credits: Remember that in households where both spouses work, the tax filing profile looks similar to that of a single person. There is a basic personal amount, medical, charity claims and for seniors the pension income amount for qualifying pensions and the age amount. There is a disadvantage relating to the clawback of the age amount as singles don't qualify for pension income splitting; nor can they transfer over a lower earning spouse's age amount.

Additional tax credits may be accessed by claiming the Canada Employment, Public Transit, Home Buyers, Tuition, and Student Loan Interest amounts.

The Eligible Dependant, Caregiver and Infirm Dependant, and new Family Caregiver Tax Credit (if passed into law) provide equal recognition to singles who support and care for family members.

Remember that medical expenses for other dependants can be used by the caregiver for the Medical Expense Tax Credit. The 2011 federal budget proposed to remove the $10,000 ceiling on expenses pertaining to other dependants. The income and living arrangements of your loved one are factored into the expense claim ñ so crunch those numbers!

The Disability Tax Credit can be transferred to a supporting individual if unused by the dependant, but this is being challenged in some cases by CRA so document the nature of the support that you provide.

More and more single Canadians are stepping up to the plate when it comes to caring for vulnerable loved ones. Make sure that single taxpayers in these situations know what tax relief is available to them. Professional help is available ñ make use of it every yearóand plan strategically for a lifetime of tax savings.

ADDITIONAL EDUCATIONAL RESOURCES: Essential Tax Facts by Evelyn Jacks