With the end of the year approaching, Canadians seeking tax-savings opportunities should be diving into their annual tax planning now rather than waiting until the spring, according to CIBC’s managing director of tax and estate planning, Jamie Golombek.
“Even though it’s four months ahead of the filing deadline, December is the best time of the year to evaluate what tax breaks you may be eligible for and adopt a strategic approach to tax-planning,” Golombek says.
He is encouraging Canadians to speak to their financial advisors to ensure they’re maximizing their tax savings before the end of the year.
One area advisors should be prepared to help clients is maximizing RRSP contributions, particularly for clients who are in their “prime earning years,” according to Golombek.
Advisors can also help clients explore other registered savings options, such as RESPs for education savings. Golombek notes that recent enhancements have resulted in more time and additional room to contribute to RESPs, and they allow investors the opportunity to supplement their savings with a number of government grants.
Before Dec. 31st approaches, financial planners could also help their clients turn losses into gains, by selling investments that are in an accrued loss position to realize the losses and offset capital gains elsewhere. In addition, interest charged on loans used to purchase non-registered investments must be paid by the end of the year to claim a tax deduction for 2008.
Income splitting strategies can also help Canadians reduce taxes. Golombek encourages exploring the option of splitting pension income with a lower-income spouse or partner. Another strategy — the “spousal loan strategy” — lets a person loan money to a lower income partner for investment purposes at the CRA’s prescribed rate of 3%. The spouse then includes the net profit in his or her income, and the higher income spouse only records in income the interest charged.
Golombek also suggests making a charitable donation in the next few weeks, since it’s the last chance for Canadians to receive a tax credit for 2008. He notes that recent changes to the rules allow Canadians to donate securities, mutual funds and other publicly traded investments to charity and pay no capital gains tax on any accrued gains.
Lastly, to avoid over-paying taxes in the year to come, Golombek encourages Canadians to complete the CRA’s Form T1213 before Dec. 31. This enables their employers to reduce the amount of tax withheld at source, by taking into account deductions such as RSP contributions or child care expenses.
“Try thinking about tax-planning as a continuous, year-round activity which evolves over time – not a dash to cram in filings at year’s end,” Golombek says. “Be aware of tax factors affecting you, your family and your business and work with a professional to develop a long-term approach which addresses tax situations now and down the road.”
IE
December the best time to evaluate tax breaks for clients
Advisors can help clients explore registered savings options, tax-loss selling
- By: Megan Harman
- December 2, 2008 October 31, 2019
- 11:00