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Some year-end tax saving tips

Simon Houle

Update :
Update :
October 25, 2017

The temperature is dropping, the leaves are turning red, and people are discussing Halloween costumes... It's definitely a sign that the end of the year is coming! When it comes to your personal finances, it's time to perform a few tasks to close out the year and set the table for 2018. Here's an overview of some important items:

Trigger a capital loss

Did you report capital gains in any of the three previous years (2016, 2015, 2014)? If so, or if you reported capital gains in the current year, you should consider selling your losing securities to deduct those capital losses against capital gains accrued in the last few years. Excess capital losses can be deducted against capital gains reported up to 3 years prior to the date of sale and carried forward indefinitely.

If you intend to re-purchase the sold security, be sure to wait 30 days before proceeding! Otherwise, the loss will be considered a superficial loss and you will not be able to deduct it. If you really want to reinvest the same day, consider buying a stock or exchange-traded fund with similar characteristics to the one you sold.

Generate a capital gain before year-end

Why would you want to realize a capital gain before the end of the year? It's only beneficial if you can make it tax-free, right? Ideally, yes. You might have unclaimed capital losses that you want to use, or otherwise you might feel like selling the stock in 2017 because you know your marginal rate is lower this year than it will be in 2018, and you were planning to sell it soon anyway. If you don't need the proceeds from the sale, you should reinvest them. Even if you buy back the same security, you'll create a new ACB (adjusted cost base), which will save taxes on the next sale.

Excess RRSP contribution at age 71

If you turned 71 this year, you must convert your RRSP to a RRIF before the end of the current year. Generally, you cannot contribute to a RRIF. However, if you are 71 and you earn income in 2017 that would normally provide RRSP room for next year, you could make an excess contribution to your RRSP equal to that future room. This contribution would take place in December, just before you convert your RRSP to a RRIF.

Giving to a charity for the first time

If you've never donated to a charity, it's important to know that 2017 is the last year to take advantage of the Super First-Time Charitable Donor Tax Credit. This is a federal credit that adds 25% to the current charitable donation credit for monetary donations up to $1,000. By adding the federal and provincial credits, you could receive up to $715. There are many good causes. If you want to support one, this is your chance!

Withdrawal from the TFSA

If you plan to make a TFSA withdrawal soon, consider doing so before the end of the year. That way, the amount you withdraw will be added to your contribution room for 2018. You'll be able to recontribute it more quickly.

Pay your bills on time

Since many tax deductions and credits are calculated on different expenses that are paid during the year, take the time to make sure payments are made before December 31, 2017 and save your receipts. Among others:

  • Medical expenses for you, your spouse and your minor children;
  • Moving expenses;
  • Custodial fees;
  • Charitable Donations;
  • Investment expenses (interest and brokerage fees) ;
  • Tuition;
  • Public transportation expenses for the first 6 months of the year. (This is the last year to take advantage of this tax credit).

Entrepreneurs, be alert!

The business community was in a state of discontent with the tax reform package that was initially introduced this summer. So, on October 16, Federal Finance Minister Bill Morneau made some changes. Here is what he proposed:

  • Starting January 1, 2018, the tax rate will drop to 10%. It will then reach 9% in January 2019.
  • It will no longer be possible for an entrepreneur to reduce taxes by splitting income with relatives who do not contribute to the business. However, there will be no change for those who work in the business.
  • Capital gains: Government reverses position on lifetime capital gains exemption. The Minister of Finance said there would be no change to the rules that currently allow owners to pass on a family business from one generation to the next without paying huge amounts of tax.

We recommend that you consult your tax specialists as soon as possible. Despite the relaxation of tax reform, entrepreneurs must seek the right advice to adjust to the changes.