Year end tax planning

Year end tax planning can save lots

November 13, 2015

Winnipeg is getting excited about the Grey Cup being here, so that means year end can’t be far away. Time to review your year-end tax planning.

Capital Loss Harvesting:

To ease the sting of declines in energy and other resource investments (or if you bought Valeant in August), you may be able to sell investments in order to realize capital losses. These losses can offset gains on other investments on which you would otherwise have to pay tax.

If your total realized losses exceed your realized gains, then you have net losses you can carry back to offset gains on which you paid tax in any of the last three tax years. (Or you can carry these forward to offset future gains.)

To carry back net losses and recover taxes paid previously, file a T1A Request for Loss Carryback when you file your 2015 return.

Start the process by asking your investment institution for the total of your realized capital gains so far for 2015, and the expected year-end distributions on any mutual funds you own. Then compare the market values of your current investments to the book values, to identify potential loss sale candidates.

If you still want to own the stock or fund, you can buy it back 31 days later. Any sooner purchase will invalidate the capital loss claim.

Another method to stay invested is to buy a similar investment that you expect to perform the same way in the near future.

You can also transfer a loss to a spouse or a corporation you own, if this is more useful. Contact your tax advisor for details.

The flipside of loss planning is deferring gains. If you want to sell something at a profit, can you wait until January?

Business Expenses:

The plan here is to incur any necessary allowable business expenses before year end. If you can legitimately defer income to January, that also helps, but you can’t just do this arbitrarily. Again, talk to your tax advisor for the rules.

Donations:

Make any planned donations in time to get a receipt for this year. Gifts to registered charities create a combined federal and provincial credit of about 45%, after your first $200 of annual donations.

Remember that if you donate investments like shares, flow-through shares or mutual funds that have capital gains, this will get you the donation credit, while exempting the capital gain from tax. So if you have such appreciated shares, consider donating them while retaining your cash.

TFSA withdrawals:

Make any planned withdrawals before December 31, then you can re-deposit this amount in 2016. If you wait until 2016 to withdraw, then you must wait until 2017 before replacing the money in the TFSA.

If you can maximize your lifetime TFSA contributions, including the $10,000 limit for 2015, do it now before the new government drops the limits.

December 31 is also the deadline to collect government grants on 2015 contributions to Registered Education Savings Plans and Registered Disability Savings Plans. (The RDSP is only for people who qualify for the Disability Tax Credit.)

Other items with this deadline include alimony and maintenance payments, medical expenses, child care expenses, child fitness and artistic activity fees, public transit passes, moving expenses, political contributions, investment counsel fees, repayments to your corporation that might otherwise become taxable, and several other tax-related expenses.

For most of us, the RRSP contribution deadline is March 1. However, people who turned 71 in 2015 and have RRSP contribution room have a December 31 deadline for their final RRSP contribution (unless they have a younger spouse). If these people wait until the usual RRSP deadline, they will be prohibited from contributing, as 2016 will be the year in which they turn 72.

A big area of planning is if you are a Trustee or beneficiary of a Testamentary Trust. The beneficial graduated tax rates disappear December 31, and I don’t think that the new government will be bringing them back.

So, have a serious sit down with your tax or financial advisor on the right strategy for you.

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Dollars and Sense is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized professional advice.Please consult legal, tax, insurance and investment experts for advice on your unique situation.

David Christianson, BA, CFP, R.F.P., TEP, CIM is a financial planner and advisor with Christianson Wealth Advisors, a Vice President with National Bank Financial Wealth Management, and author of the book Managing the Bull, A No-Nonsense Guide to Personal Finance.