TFSA contribution conundrum
Dec. 31 is the key date for 2017 Tax-Free Savings Account (TFSA)
contributions. If you can’t contribute to or top up your TFSA before
year-end, you can carry forward the unused amount as additional
“contribution room” into future years. But be careful how you handle TFSA
contributions in any given year.
Most people with TFSA problems have tripped over the rules related to
withdrawals and contributions in a given year.
This can happen if you start dipping into your TFSA through the year, and
then making contributions in the same year. You could end up with “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amount was contributed and withdrawn later during the same month.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. So
check with your advisor to make sure you’re on-side with your TFSA
contribution room before making any last-minute contributions this year.
RRSP maturity options
The rules say that you must collapse your Registered Retirement Savings
Plan (RRSP) by the end of the year in which you turn 71. If you’re in this
position this year, you have only a couple of weeks left to make some key
decisions. There are basically three choices: You can take the entire
amount into income immediately (and pay tax on it this year at your top
marginal rate, which could be hefty if your RRSP is a big one); you may
purchase an annuity; or you may convert your RRSP into a Registered
Retirement Income Fund (RRIF), which gives you the advantage of a mandated
withdrawal rate with continued tax deferral on the balance within the plan.
Many people build some combination of these choices to maximize income,
security, and tax efficiency.
Registered contribution deadlines
Dec. 31 is also the last day you can make eligible 2017 payments to a
Registered Education Savings Plan and a Tax-Free Savings Account. But
remember that Dec. 31, 2017, is a Sunday, so you’ll want to make any
payments and contributions well before then to ensure they’re processed in
2017. You can make contributions to your RRSP within 60 days after year-end
to be eligible for a 2017 tax deduction.
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.
Defer RRSP/RRIF withdrawals
And if you’re planning a withdrawal from your Registered Retirement Savings
Plan (RRSP) or Registered Retirement Income Fund (RRIF), wait until January
if you can. Withdrawals from these plans are included in your taxable
income for the year. By deferring a withdrawal until early 2015, you’ll put
off the tax hit for another year.
A number of payments that you can make before year-end will give you a tax
benefit for 2017. These include charitable donations (you can still do it
online to ensure your donation is processed for 2017), and
investment-related expenses used to earn income, like investment
counselling fees and interest payments on money borrowed for investment
While not strictly 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.
Mutual fund purchases
Avoid buying 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.
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
2017 tax loss, the settlement of the transaction must take place in 2017.
Because it now takes two business days following a trade 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 2017 tax year is Dec.
27 for settlement before year-end. (This year, Canadian markets are closed
Dec. 25 and Dec. 26.) But check with your broker or advisor now, while you
still have time, to be absolutely sure you can meet the various transaction
Year-end business tax tips
If you’re a business owner, consider buying computer and other equipment
now rather than deferring purchases to January. Your capital cost allowance
(CCA) will increase for the year, even though you’re entitled to claim only
50% of the allowable CCA (the “half-year rule”). In addition, your CCA
claim for next year will be that much larger. Likewise, delay disposition
of depreciable assets until January so as to avoid reducing your CCA claim
You might also look at areas where you can bring forward deductible
business expenses into 2017, for example, advertising or supplies. And on
the other side of the coin, consider delaying business income due in
December until January (if you have a Dec. 31 year end), thus reducing your
tax bill for the current year.
The strategies I’ve outlined here won’t apply to everyone, and may be
subject to other tax rules and restrictions. As always, consult with a
qualified advisor when contemplating changes to your investment portfolio or when considering
tax-driven business strategies. – 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
for a confidential planning consultation.
Notes and Disclaimer
© 2017 by the Fund Library. All rights reserved. Reproduction in whole or
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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.