By Medicine Hat News Opinon on November 30, 2019.
Another year has come and gone. With the holiday season upon us there are more joyous things to think about. Perhaps tax planning doesn’t rank that high on your list of holiday priorities and I wouldn’t blame you one bit if it didn’t. But by taking a few minutes to review your financial affairs you can yield significant tax savings. 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. Any transaction you make to realize a capital loss must settle before the end of the calendar year. 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 2019, if you currently have unrealized capital gains you may want to consider deferring the realization of capital gains until year 2020 depending on what tax bracket you may be in this year versus next year. This way if you wait until January 1st you have a whole year and then some before you have to pay taxes on the realized gains.
It is that time of year to give and 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 first, realize a capital gain then donate the cash. This way any realized gain from donating is tax free and you get the extra bonus of the tax credit at tax time.
RSP contributions if turning 71 in 2019
If you are turning age 71 in 2019, you must convert your RRSP, Individual Pension Plan (IPP), Locked-in Retirement Account (LIRA) or Locked-in RRSP to one of the maturity options that are available by December 31, 2019. Keep in mind that if you would like to make a final contribution to a Spousal RRSP of which you are the annuitant and be able to claim the deduction on your 2019 tax return, you DO NOT have the extra 60 days after 2019 to make your RRSP contribution. Contributions are not permitted to a RRIF.
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?
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.
This article outlines several strategies, not all of which will apply to your particular financial circumstances. The information is not intended to provide legal or tax advice. To ensure that your own circumstances have been properly considered and that action is taken based on the latest information available, you should obtain professional advice from a qualified tax advisor before acting on any of the information in this article.
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. To attend our next workshop on February 12th, 2020 at the Medicine Hat Lodge, or for more information on this and other financial strategies, contact Craig at http://www.acelder.ca or 403-504-2723.
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