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ARE THERE ANY YEAR-END TAX BREAKS FOR MERE MORTALS?
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Fund Library Q&A
Your questions about financial planning, investments, and portfolio management answered by an industry expert



By Robyn K. Thompson  | Friday, December 16, 2016


Q – Year-end is fast approaching, and it seems all the experts have reams of tax tips to offer us, many of which seem to apply only to the very wealthy or to businesses with complicated tax structures. Are there three or four must-do year-end tax-saving tips that apply to us mere mortals? – George B., Mississauga, Ontario

A – Fortunately, there are a few simple things for those of us down here on planet Earth we can do by Dec. 31 to help save a few bucks in tax. Here are my favorities:

Mutual fund purchases

For example, you should not buy a mutual fund in December in a non-registered account. If you do, you could end up paying tax without ever having made a buck in gains. It all has to do with year-end distributions made by mutual funds.

Then, if you’re an investor, and you’ve got some losing stocks in your portfolio, you might want to consider selling before year-end.

Tax-loss selling

If you’ve lost money on investment assets in your portfolio, consider selling before year-end if you wish to use losses to offset any gains you might have made earlier in the year on other investments. To qualify for a 2016 tax loss, the settlement of the transaction must take place in 2016.

Because it takes three business days to settle a transaction, the last possible day to sell both Canadian and U.S. securities to be eligible for a capital loss for the 2016 tax year is Dec. 23 for settlement by Dec. 30, 2016. (This year, Canadian markets are closed Dec. 24 to Dec. 27 inclusive.) But check with your broker or advisor now, while you still have time, to be absolutely sure you can meet the various transaction deadlines.

Year-end payments

There’s also a number of payments that you can make before year-end to get a tax benefit for 2016. These include such things as charitable donations (you can do it online to ensure your donation is processed for 2016), interest payments on money borrowed for investment purposes, investment counseling fees, even safe-deposit box rental fees. While not investment-related, ensure you make any necessary medical or dental payments for items not covered by provincial health plans. These include such things as glasses, prescription drugs, and hearing aids. Pay before year-end and you can add them to your medical expense deduction for the year.

Dec. 30 is also the last day you can make eligible 2016 payments to a Registered Education Savings Plan and a Tax-Free Savings Account. But don’t leave it to the last minute – there could always be snags in the paperwork that cause you to miss the deadline.

And if you’re planning a withdrawal from your RRSP or RRIF, wait until January if you can. That way, you’ll defer the tax hit for another year.

TFSA contribution conundrum

Mostly, people who come to me with TFSA problems have run afoul of the rules related to withdrawals and contributions.

This happens if you start using your TFSA like a piggy bank or a daily interest savings account, dipping into it when you’re short of funds, and then topping up again when you’re flush. If you’re prone to doing this, you could end up in a confusing cycle of contributing, withdrawing, and re-contributing so that you end up with what the Canada Revenue Agency calls “excess amounts” in your TFSA – that is, over and above the $5,500 annual contribution limit for the year.

The CRA levies a tax penalty of 1% per month based on the highest excess TFSA amount in your account for each month in which an excess exists. This means that the 1% tax applies for a particular month even if an excess amount was contributed and withdrawn later during the same month. The excess-amount tax kicks in on the first dollar of excess contributions.

While it can be tricky to locate your TFSA contribution room information, you can start at one of the following Canada Revenue Agency websites: My Account; MyCRA; or Tax Information Phone Service (TIPS).Robyn

Robyn Thompson, CFP, CIM, FCSI, is the founder of Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management for high net worth individuals and families. Contact her directly by phone at 416-828-7159, or by email at rthompson@castlemarkwealth.com for a confidential planning consultation.

Notes and Disclaimer

© 2016 by the Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned are illustrative only and carry risk of loss. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.

 
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