Financial Focus: Year-end tax planning tips

By Medicine Hat News on December 8, 2018.

As the year-end approaches your thoughts may be somewhere other than taxes. To be fair, perhaps tax planning doesn’t rank that high on your list of priorities; but changes in provincial and federal governments have also changed tax policies that may affect you. By taking a few minutes to review your financial affairs before the end of the year you can yield significant tax savings. Always discuss taxation issues with your accountant or tax professional first. That being said, the following are some common ways to employ tax planning before the end of the year to keep more of your hard earned money in your pocket.

Tax loss selling

The strategy of selling securities at a loss to offset other capital gains realized during the year is probably the most popular year-end tax planning technique. In order to ensure that the capital loss can be claimed, you must adhere to the “superficial loss” rules. You may also be able to claim a refund on capital gains paid in previous years. There are specific regulations around this so discuss this in depth with your financial professional before you act.

Defer realizing capital gains

You may be aware that deferring to realize a capital gain is a popular tax planning strategy. As we approach the end of 2018, if you currently have unrealized capital gains you may want to consider deferring the realization of capital gains until year 2019 depending on what tax bracket you may be in this year versus next year. This way if you wait until Jan. 1 you have a whole year before you have to pay taxes on the realized gains.

Reviewing income drawn from your corporation

Corporations are used by business owners and professionals for many reasons. When income is taken out of a corporation it is taxed in personal hands. With changes to federal and Alberta personal tax rates it may be wise to review the potential tax impact. It may make sense to draw more income this year to avoid paying more tax on income next year.

Charitable giving

With all the incentives for charitable giving that now exist, there is no better time to give if you are able. Remember you can give the gift of your investments in-kind — which means you do not sell them but donate the investments directly to the charity. This way any potential realized gain is tax-free and you get the extra bonus of the tax credit for the donation.

Defer mutual fund purchases

The purchase of mutual funds in your non-registered investment account near year-end can result in an unexpected tax liability next April. If you purchase these funds near year-end, the year-end distribution received may include taxable income or capital gains even though the overall value of their holdings may not have changed!

Get next year’s tax refund early

If you normally get a tax refund when you file your tax return, you should consider applying to the Canada Revenue Agency (CRA) for a waiver to have your employer reduce your tax withheld at source from your pay cheque. Why allow the CRA to use your tax refund interest-free during the year?

And finallyÉ

You should remember to pay all investment management fees, tuition fees, safety deposit box fees, accounting and legal fees if deductible, charitable donations, child-care expenses, alimony, and medical expenses by year-end if the intent is to deduct them on your 2018 tax return.

These are just some of the ways to reduce the amount you have to pay CRA. Keeping more of your money is just as important as growing your money.

A. Craig Elder, CFP, FMA, CIM, FCSI, is a Vice-President, Portfolio Manager and Wealth Advisor with RBC Dominion Securities Inc. in Medicine Hat. RBC Dominion Securities is a member of the Canadian Investor Protection Fund. This article is for information purposes only. Please consult with a professional advisor before taking any action based on information in this article. For more information on this and other financial strategies, contact Craig at 403-504-2723.

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