TAXES
Year-end tax tips
The familiar and the not-so-familiar
Last Updated: Friday, December 18, 2009 | 5:03 PM ET Comments0Recommend2
CBC News
(iStock) With the end of the calendar year drawing near, people's thoughts turn to the festive season — food, gifts, a brief respite from work. Accountants also think of the things that must be done by Dec. 31 to claim extra tax breaks.
While those year-end lists contain the familiar — reminders to make that charitable contribution or perhaps to sell that losing stock — they sometimes contain some unexpected nuggets of advice you might not have considered. We cherry-picked some of the best year-end tips that may just put a few extra dollars in your pocket:
Consider making withdrawals from your Tax-Free Savings Account by Dec. 31.
"If you have set up a TFSA and you're planning a withdrawal, consider doing so before the end of 2009 rather than early 2010," KPMG advises. Why is that? The firm points out that amounts withdrawn aren't added to your TFSA contribution room until the start of the year after the withdrawal. So if you have $5,000 in your TFSA and want to take out $4,000, do it in December. That way, you could re-contribute that $4,000 along with your new 2010 contribution limit of $5,000 as early as January 2010. If, on the other hand, you withdraw that $4,000 in January, you won't be able to re-contribute it until 2011.
Be aware that the Home Renovation Tax Credit is about to expire.
The HRTC is a 15 per cent tax credit that was unveiled in the January 2009 federal budget. It applies to any amount spent over $1,000 up to a maximum of $10,000. Materials must be bought by Jan. 31, 2010, but labour expenses will qualify only if the work is completed by that date.
Jamie Golombek, the manager of tax and estate planning at CIBC Private Wealth Management, points out that "in the nine months or so since the credit was first introduced, the Canada Revenue Agency has released numerous technical interpretations over exactly which types of renovation expenses qualify." He says some of the recent additions to the list include the sanding and refinishing of hardwood floors, permanently wired or installed home security systems (but not the monthly monitoring), the cost of installing a small outdoor sauna building on your qualifying property, driveways, permanent air conditioners and heat pumps, and solar panels (even if you received other government tax credits or grants).
Golombek also advises that if you're thinking of buying your first home in early 2010 with RRSP funds withdrawn through the Home Buyers' Plan, "consider delaying your HPB withdrawal until 2010 to allow you one additional year before repayments must begin."
Taxpayers who collected employment insurance this year should review their tax obligations.
H&R Block says the more than 800,000 Canadians who collected EI this year should gather up their receipts, look at how much tax was withheld, and prepare accordingly so they won't be hit with a nasty surprise in April. "In most cases, EI only withholds 10 per cent back for tax purposes, which is less than the lowest tax bracket," the firm says. "If the taxpayer collecting EI earned any other income in 2009, they could be facing a tax bill when they prepare their return next year."
Delay the purchase of any GICs until January.
Ernst & Young advises that you "push your purchases of long-term fixed investments until January 2010 to defer the related tax by one year."
Time those dividend payments.
KPMG notes that the tax rates on eligible dividends go up Jan. 1 in every province except New Brunswick. "If you can arrange to receive eligible dividends in 2009 rather than 2010, you could save up to three per cent in tax depending on which province you live in," KPMG says.
Consider donating stock to charity.
CIBC's Golombek notes that donating stock to charity can be doubly rewarding. "Gifting publicly traded securities with accrued capital gains … not only entitles you to a tax receipt for the fair market value of the security being donated but eliminates any capital gains tax as well," he says.
Wind up your RRSP by Dec. 31 if you turn 71 this year.
This is the last year to have an RRSP for those whose 71st birthday occurred in 2009. Those people must convert it into either a Registered Retirement Income Fund (RRIF) or registered annuity by year's end. They must also make their last RRSP contribution before they wind it up (not the March 1, 2010, deadline that others face).
However, "you can continue making deductible contributions to a spousal RRSP until the end of the year in which your spouse turns 71, as long as you have earned income in the previous year or unused RRSP contribution room carried forward from prior years," KPMG says.
Contribute to a Registered Education Savings Plan.
Contributions to an RESP aren't tax deductible. But if you make that contribution by Dec. 31, you'll get the Canadian Education Savings Grant (20 per cent of the first $2,500 of RESP contributions — or up to $500) into the RESP in 2010.
For children who turn 15 in 2009 and have never participated as a beneficiary in an RESP, the deadline is doubly important because that contribution will create CESG eligibility for 2010 and 2011. "If you miss the deadline, the child or grandchild will not be eligible for any grants in the future," CIBC's Golombek writes.
Consider selling your loser stocks.
If some of your investments took a dive in the last market crash and aren't likely to recover, you may want to sell them, claim a loss and apply it against taxable capital gains. "The more capital gains tax you paid in the last three years, the more you should consider the tax advantages of tax-loss selling," KPMG advises.
Because trades take three business days to settle, Ernst & Young says trades must take place by Dec. 24 for Canadian exchanges and Dec. 28 for U.S. exchanges to qualify as 2009 trades for tax purposes.
Split income by locking in family loans.
The Canada Revenue Agency's current prescribed interest rate for loans to a spouse is just one per cent. "So if the loan is made before Dec. 31 … any investment returns above the one per cent rate can be taxed in the hands of the lower-income spouse," CIBC's Golombek says. Furthermore, "even though the prescribed rate varies quarterly, you need only use the rate in effect at the time the loan was originally extended," he notes.
Consider delaying or speeding up your out-of-province move.
"Check the provincial tax rates before deciding the moving day," H&R Block advises. The provincial tax rate you pay for all of 2009 depends on where you are living on Dec. 31. "So if there is a substantial difference in the tax rates, you may want to either speed up or defer the move." Alberta's provincial tax rate, for instance, is 10 per cent at all income levels. Quebec's rate starts at 16 per cent and rises to 24 per cent on income above $76,770.
Contribute to Registered Disability Savings Plans.
These relatively new vehicles allow people to put a lifetime limit of up to $200,000 into a tax-sheltered RDSP. Contributions are not tax-deductible. But to qualify for 2009 government matching grants and bonds worth up to $4,500, the contribution must be made by Dec. 31.
If you're thinking of getting married soon, it could be worth it to tie the knot this month.
H&R Block points out that you file your taxes based on your marital status on Dec. 31. "So if you want to claim your new spouse as a dependent on your 2009 return, you can claim them for the full year even if you are married on New Year's Eve," the tax preparation firm says. "Just make sure you say your vows before midnight."
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