Well, the weather sure says “December”, as does the calendar. That must mean it’s time to review your year-end tax planning.
If you do nothing else, be sure to 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), so give generously.
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.
Another reminder is to consult your tax advisor now, if you have complex issues or potential opportunities, especially with corporations. Heed the deadline.
With investments, you want to minimize tax on capital gains. Prepare by asking your investment institution for the total of your realized capital gains for 2014 on sales of investments, and the expected year-end distributions on any mutual funds you own.
We are busy reviewing these reports for all of our clients, to harvest capital losses to offset capital gains for the year. The good news? Almost no losses to report.
Recall that half of the net of capital gains over losses realized in the current year are taxable in the year. However, you can offset gains by selling investments that are in a loss position.
Net losses realized in 2014 can also be carried back to offset gains claimed in any of the previous three tax years, by filing a T1A Request for Loss Carryback when you file your 2014 return. This can actually recover taxes that you paid in the past.
Ask your investment advisor for a “realized capital gains report” for the year-to-date. Then compare the market values of your current investments to the book values, to identify potential losses to be realized by selling and offsetting the realized gains.
If you still want to own the stock or fund, you can buy it back 31 days later. Alternatively, buy a similar investment that you expect to perform the same way in the near future.
Make any planned withdrawals from your TFSA (Tax Free Savings Account) before December 31, then you can re-deposit this amount in 2015. If you wait until January, 2015 to withdraw, then you must wait until 2016 before replacing the money in the TFSA.
December 31 is also the deadline to collect government grants on 2014 contributions to Registered Education Savings Plans and Registered Disability Savings Plans. (The RDSP is limited to people who qualify for the Disability Tax Credit.)
For most of us, the deadline is March 1, 2015, for making RRSP contributions deductible in 2014. However, folks who turned 71 in 2014 and have RRSP contribution room have a December 31 deadline (unless they have a younger spouse). Their RRSPs must be converted to RRIFs (and LIRAs to LIFs) before year end. If these people wait until the usual RRSP deadline, they will be prohibited from contributing, as 2015 will be the year in which they turn 72.
December 31 is the annual deadline for 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.
Be sure to make any current payments by December 31, and get a receipt dated 2014.
Deductible business expenses for business owners and commission salespeople must generally be incurred within the year in order to be deductible, so make any planned purchases before December 31.
It pays to take a little time now, and review this list to see what applies to you. It may pay off nicely when you file in the spring.
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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 and investment experts for advice on your unique situation.
David Christianson, BA, CFP, R.F.P., TEP, CIMis 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.