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Just In Time, Tax-Saving Tips

20/12/2010


Not that anyone is looking for more things to do at this time of year, but the end of the calendar year is a pretty important date from an income tax perspective.

Retroactive tax planning isn't particularly effective, so be pro-active this year and give some thought to the following ideas:

  • In keeping with the spirit of the season, consider making charitable donations today rather than waiting until next year so that you can claim your credit on your 2010 tax return rather than waiting until 2011. When considering this idea, remember that effectively twice the credit is given for donations in excess of $200 in any given year. So if you're hovering around the $200 mark, keep in mind that you'll be saving about 44 cents for every additional loonie you donate leaving you with a net cost of 56 cents.

  • If you're in the process of selling an asset with a large capital gain ( real estate or stocks), consider delaying the sale until January 2011 or later. By so doing you'll be able to defer the resulting income tax by an entire year. It's much better for you to have the money in your pocket to play with rather than in the hands of CRA.

  • On the other hand, if you've already realized taxable capital gains this year, review your investment holdings for assets that are perpetual losers and consider dumping them before the year is out. This will enable you to use the resulting loss to reduce your impending tax bill. If you're considering jettisoning stocks, remember that December 24, 2010 is the trading deadline to have the transaction treated as a year 2010 deal.

  • Current year capital gains aren't the only reason to create capital losses this year. Because capital losses can be carried back three years to offset against capital gains, if you had a capital gain on your 2007 tax return, triggering a loss this year will enable you to carrying the amount back to offset against your 2007 gain and recover some tax. Miss the chance to carry-back a capital loss this year to apply against 2007 capital gains and the opportunity is forever lost.

  • Your province of residence on Dec. 31 determines which province has the right to assess tax so if a move to another province is in the cards, pay close attention to the timing of your move.

    Obviously you want to be resident on Dec. 31 in the province with the lowest tax rate. Don't mistakenly assume that Alberta is automatically the lowest tax jurisdiction in the country at all income levels. The low and middle income levels, B.C. wins the day in that category. Alberta wins at the top end.

  • For 2010, only qualifying medical expenses that exceed of the lesser of three per cent of net income or $1,957 are eligible for a tax credit. Claims for out-of-pocket medical expenses can be made for qualifying medical expenses paid during any 12-month period ending in the year. This means that expenses paid in 2009 may be eligible for claim on this year's tax return. If your total medical expenses put you close to making a claim remember that some expenses (daily-wear contact lenses) can be paid in advance. Other expenses such as major dental work or laser eye surgery can be paid by installments, which is fine, but it may make sense to forego the installment method and pay for everything all at once to ensure eligibility for the medical expense credit.

  • While March 1, 2011 is the RRSP contribution deadline for 2010 deductions, if you'll be making a spousal contribution, consider contributing before the end of this year. A withdrawal of funds by your spouse after Dec. 31, 2012 will be taxed at your spouse's marginal tax rate rather than yours. If you make a spousal contribution in the first 60 days of 2011, you'll have to wait an extra year if you want the income taxed to your spouse and not in your hands. As a word of caution, this contribution and withdrawal income-shift only works if you do not make any spousal RRSP contributions in the intervening period.

  • Still on the subject of RRSPs, if you turned 71 this year, make your RRSP contribution before the end of this year. Your RRSP maturity options should also be considered – lump-sum withdrawal, purchase of an annuity or a RRIF.

Jim Maroney is a chartered accountant with Meyers Norris Penny in Maple Ridge. Check back often for more updates, or subscribe to our MNP Blog RSS Feed.