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Tax Planning for Year-End


Richard Weber on December 19, 2012 in Tax

December is the perfect month to get your finances in order for the 2012 tax year. Please consider some of these tips to find tax savings for 2012 and to prepare for a healthy financial situation in 2013.

Tax loss investment selling

This is a good time to sell investments that accrued losses in 2012 since you will be able to offset capital gains in your 2012 portfolio. However, please be aware that the final trading date to do this is December 21.

Before deciding on this move, though, consider how much capital gains tax you paid in the past three years. The more you paid, the more reason you should think about the tax benefits of tax loss selling prior to year end. It will allow you to make a tax adjustment and get a tax refund on the capital gains you had paid earlier.

Look at a Registered Education Savings Plan (RESP)

RESPs enable you to save for post-secondary education and December 31 can be critical in some situations. You should consider contributing to your RESP by December 31 if you haven’t maximized your contributions and you still have less than seven years before your child becomes 17.

Additionally, if you have a child or grandchild who turned 15 this year and has yet to benefit from an RESP, then December 31 is your last opportunity to contribute a minimum of $2,000 to an RESP so that you can benefit from the 20 percent Canada Education Savings Grant (CESG) for 2012 and then establish CESG eligibility for 2013 and 2014.

Tax-Free Savings Account (TFSA)

If you are planning to withdraw money from your TFSA, you should make the withdrawal before the end of this year instead of early in 2013. This is because any amounts withdrawn won’t be added to your contribution capacity until the beginning of the subsequent year after withdrawal. Also, you might want to consider the amount in contributions you plan to make in the New Year. You will be able to contribute as much as $25,000 in January as long as you haven’t paid in earlier.

RRSP contributions

Even though there is no December 31 deadline for your RRSP contributions, I would advise that you make your 2013 contributions in January rather than your 2012 contributions by the end of February as most people choose to do. This step will give you a 14-month head start, though it will require some fiscal discipline but it could be well worth the effort.

Payments due by December 31

In addition to the December 31 deadline for charitable donations, which most people know about, there are several other payments that must be made by year’s end to ensure you get a tax deduction or a tax credit for 2012:

  • Political donations
  • Safety deposit box charges
  • Union and professional dues
  • Medical expenses
  • Alimony and child-care expenses
  • Investment counsel fees and interest and other investment expenses

Evaluate trusts

Year-end is a good time to review a range of issues on family trusts. You should ensure that any out-of-province or country trusts are legitimately managed out of that jurisdiction. A figurehead trustee is not sufficient to meet the various jurisdictional rules. In fact, you should have central management in the location in question.

You may have a discretionary family trust, which many entrepreneurs choose in order to allow income splitting with other family members. You should ensure that the income in your discretionary trust is either declared payable or paid out prior to December 31. Without taking these measures, that income will be taxed at the top tax rate in the trust.

For more information on year-end tax planning, please contact me at 905-633-6332 or by email at .(JavaScript must be enabled to view this email address)