‘Tis the season to be… thinking about year end tax and investment planning!
My tree was up very early this year (thanks to some very keen kiddos), my aunt delivered the most beautiful wreath to my door one Friday night and with all the snow in November, I’m very much in the holiday spirit!
Now, as the year end approaches, let’s review some common year end tax planning strategies.
Tax Loss Selling
If you have securities with unrealized losses, you may wish to sell them before year end to offset capital gains in the current or prior tax years (max three years back). Tax loss selling is applicable only in non-registered accounts. Be wary of the superficial loss rules
Capital Gains Deferral
Depending on your income for 2018 and projected income for 2019, you may wish to delay triggering any capital gains until the new year. This strategy will also delay taxes owing on the gain.
RRSP Contributions & if you are turning 71
December 31st is the final day to make an RRSP contribution if you turned 71 during 2018. Otherwise, March 1, 2019 is the deadline for contributions to count towards your 2018 income.
Tax Installments
As December 15th falls on a Saturday this year, all tax installments are due on Monday, December 17th to avoid any penalties.
Charitable Donations
December 31st is the last day in which you can make a charitable contribution and claim the deduction on your 2018 tax return. Rather than make cash donations, consider making in-kind donations of securities that have appreciated. This way, you will be exempt from any capital gains taxes.
Early/Extra RRSP Withdrawals
If your income in 2018 will be less in 2019, consider making early or extra RRSP/RRIF withdrawals. Excess funds can be reinvested inside your TFSA for the 2018 tax year or wait and invest in January 2019 as you will have additional contribution room.
RESP top ups
December 31st is the final day to make an RESP contribution for the 2018 tax year. If your child is 17 and you have been making RESP contributions already, this is the final year to qualify for Canada Education Savings Grants and Learning Bonds etc.
TFSA Contributions
If you have any TFSA room, consider adding to your TFSA before year end. This way you’ll be ready come January when the contribution room is increased by $6000!
Year-end Bonus Planning
There are a lot of considerations here! If you accrued a bonus this year, depending on your tax bracket and marginal tax rate, you may wish to defer some or all to January 2019. Your employer will hold back withholding taxes unless there is an option to transfer directly to your RRSP (you need enough room). Consideration #2, a bonus will create additional RRSP contribution room or allow for greater pension plan contributions.
Mutual Fund Purchases & Distributions
December is the month where most mutual funds trust units pay a taxable distribution to unit holders. This distribution includes accumulated income and gains for the year. Before making a large purchase in your non-registered account, check what the distribution estimate is and when it will be paid. It may be to your benefit to hold off on that purchase a few weeks to you don’t end up paying taxes on a fund that you did not hold all year.
Interest on Spousal Loans
Interest on spousal and prescribed rate loans is due no later than January 30, 2019. This is a very important deadline where if missed, attribution will occur and the lender will pay the tax on the gains and distributions.
This list is not all inclusive. If you have any questions, please contact our office.
Happiest of holidays!
