Generally, we think about our taxes in March and April when our ability to affect them has long passed. Below are 7 tax tips that you may want to consider before the end of the year.
1. Triggering Taxable Income: If your taxable income was unusually low compared to normal years you may want to trigger some taxable income on purpose. This may allow you to take advantage of a preferable marginal rate. You can do this by selling investments in a gain position or making a RRSP / RRIF withdrawal. If you were on maternity leave or were unemployed think about this. For retired people, have read of my January 20, 2020, article ‘Triggering Tax on Purpose’ as a strategy to pay a lower amount of tax over your lifetime.
2. Put tax-loss selling strategies to work: If you have an investment that is in a loss position you may want to sell it and realize the loss. Capital losses can be applied against capital gains and can be brought back 3 tax years or held on to indefinitely forward. So, if you had a big gain a few years ago this would be a helpful tactic. Importantly this only applies to non-registered or OPEN accounts.
3. Significant Tax-Free Savings Account (TFSA) Withdrawals: If you were planning to make a large TFSA withdrawal in the coming months, consider doing it before the end of the year. Why? Your ability to recontribute the funds. You can only recontribute the withdrawn amount in the following calendar year. As a result, a January withdrawal could be recontributed 11+ months later whereas a December withdrawal would only have to wait 1 month.
4. Contribute to your child’s Registered Education Savings Plan (RESP) or Registered Disability Savings Plan (RDSP): These plans receive government grants on contributions and are age dependent. For the RESP, the final grant eligible year may be the calendar year when the child turns 16 or 17 depending on the contribution history. The last year to get the grant for the RDSP is when the beneficiary is in the year they turn 49.
5. Take advantage of the $2,000 Pension Income Credit: If you are 65 or older and not drawing from your RRIF or work pension, consider taking $2,000 out of a RRIF even if you don’t need it. These funds receive a 15% federal credit or $300. And, these credits don’t accumulate in the background if you don’t take advantage of them.
6. Make charitable donations: If you are going to make a charitable donation in the coming months, consider doing it before the end of the year. Charitable donations tax credit can be saved for up to five years if the present year turns out not to be optimal.
7. Making a final RRSP contribution by year-end: If you are 71 this year and do not have a younger spouse this is the last year that you can make an RRSP contribution. Importantly, you can claim the deduction for that tax year or hold on to it. This may come in handy if you foresee a year when your income might be high. Maybe you are planning to sell the cottage or a non-registered investment in a few years.
If you have any questions feel free to reach out.
