10 money-saving tax tips to consider before the New Year
Most Canadians realize they live in one of the most-taxed nations in the world. From a financial planning perspective, these ten tips help manage your tax bill with the Canada Revenue Agency. As we approach the end of 2018, these are some of the tips I urge my clients to consider.
Written by Omar Shaikh, CFA, CFP
PortfolioManager & Investment Advisor
Volatile stock markets can mean tax saving opportunities
In a challenging year for equity markets, many Canadians are holding investments that are trading at a level below what they paid for them. Consider selling losing positions to offset any other capital gains also realized in 2018; this is called tax loss selling. Importantly, after offsetting gains in 2018, these losses can be carried back for the past three tax years (2015, 2016 & 2017) and offset gains taxed in those years. Any tax loss selling must be completed by December 27th, 2018 so the transactions settle this year. Sales of investments should be considered from an investment perspective first. Rather than miss out on potential recovery in a weak sector consider lateral switches to provide similar market exposure within an industry. Superficial loss rules may also apply so be sure to discuss these with your advisor.
Tis’ the Season of Giving
Remember that donations above $200 receive a 29% federal tax credit plus the applicable provincial tax credit. To get above the $200 threshold, consider combining two or more years of donations on one tax return to qualify for the larger tax credit. You can also qualify for the larger tax credit by combining your donations with that of your spouse.
Not holiday dinner chatter, but it can save you a bundle
Political donations made to your favourite political party can attract a 75% credit on the first $400; be sure to make these donations before the end of the year.
A gift that keeps on giving
Rather than donating cash to your favourite charity, donate a security ‘in-kind.’You will receive a donation receipt for the market value of the securities when donated. Choosing a security with a significant unrealized capital gain is key, as the capital gain that would normally be associated with the disposition of that security will not be included in your income and therefore not taxed.
Be smart about education savings
Manage carry-forward balances for RESP contributions effectively as the government will only pay out a maximum of $1,000 per year for the RESP grant. It is important to time your catch-up contributions in a way that maximizes the grant paid.
Planning to spend
Tax Free Savings Accounts (TFSAs) are an excellent long-term savings vehicle. Occasionally these funds will have to be accessed to help manage near-term expenses. Consider making any planned withdrawals from these accounts before year-end. Any money withdrawn from a TFSA can be replaced after January 1st the following year. Talk to your Advisor about your capital needs over the next 18 months to manage TFSA withdrawals. Withdrawing funds from these plans before year-end ensures you can put large cash withdrawals from a TFSA back into the account in a reasonable amount of time without having to wait a full year.
Getting the Most Out of Your RRSP (and Not Necessarily Paying for it)
Most investors know they must convert theirRRSP accounts to an RRIF account in the year in which they 71. Many don’t know that an RRSP or a portion of an RRSP can be converted early to create income that would be eligible for the pension tax credit. Those aged 65 years and older can effectively withdraw $2,000 from an eligible RRIF tax-free if they are not otherwise making use of the pension tax credit.
Smooth out your income and save tax along the way
If your income is unusually low, consider making a withdrawal from an RRSP account (or a larger than normal withdrawal from an RRIF account). The tax applied will be reduced based on your lower income for the year. Strategic withdrawals of this nature can help manage the lifetime tax liability with these accounts.
Just Say NO to Hazardous Mutual Fund Capital Gains Distributions
Making a large investment in aNon-Registered account in a mutual fund or ETF can be hazardous in December as these funds will distribute the capital gains realized over the whole year to whoever owns the units on the distribution date – even if you did not benefit from the gain! Be sure to discuss any purchases late in the year with your advisor to understand the possible tax implications.
Happy Holidays, A True Tax Shelter Opportunity
There are few tax shelters available to Canadians. However, flow-through shares have created allowable deductions for many years and are still allowed by theCanada Revenue Agency. Purchases of eligible flow-through shares have to be made before the end of the year. Flow-through shares can be purchased as part of a fund or limited partnership, or individually. Flow-through shares often come with significant investment risk; it’s important to discuss these risks with your advisor.
Some legal jargon – not all of these ideas may be right for your situation – so be sure to contact your financial advisor or tax specialist, or reach out to your Echelon Wealth Partners advisory team. Have a safe and happy holiday season.
Omar and the Executive Wealth Solutions Team,
Echelon Wealth Partners
This newsletter is solely the work of Omar Shaikh for the private information of his clients. Although the author is a registered Investment Advisor with EchelonWealth Partners Inc. (“Echelon”) this is not an official publication of Echelon, and the author is not an Echelon research analyst. The views (including any recommendations)expressed in this newsletter are those of the author alone, and they have not been approved by, and are not necessarily those of, Echelon.
Echelon Wealth Partners Inc. is a member of the Investment Industry Regulatory Organization of Canada and the CanadianInvestor Protection Fund.
EchelonWealth Partners Inc., its divisions, subsidiaries, and affiliates, do not provide any income tax advice and does not supervise or review any income tax returns. Please consult your accountant. Important information about flow-through limited partnerships is contained in their relevant Prospectus/Offering Memorandum. Please obtain a copy and read it carefully including the associated risks and tax consequences before investing.