With the April tax return filing season several months away, the issue of taxes is probably far from your clients’ minds. But yearend is rapidly approaching and there are strategies clients should consider — before the end of 2007 — that could make filing tax returns a less painful experience.

Investment Executivetalked to tax experts about what is important this year. Here are their priorities:

> Suggest that your client sell investments with accrued capital losses before yearend to offset any capital gains that will be realized in 2007 or were realized in the previous three years.

“Usually, you try to generate losses to offset current gains or previous gains — because you are going to have to pay taxes on them or you have already paid taxes on them,” says Aurele Courcelles, senior specialist in tax and estate planning for Investors Group Inc. in Winnipeg.

Any capital losses realized this year can first be used to reduce capital gains in the current year; if your client’s losses exceed his or her gains, then the losses can be carried backward up to three years and applied against capital gains in those previous years.

“If you haven’t necessarily gained this year but you have paid taxes on gains in the past three years,” adds Courcelles, “and with recent market turmoil you have stocks, bonds or mutual funds with accrued losses, you could consider selling them and using the losses in those three years.”

> There are added benefits this year for clients who receive pension benefits. In 2006, the pension income tax credit was increased to $2,000 from $1,000.

“The strategy is to make sure your client generates $2,000 of qualified pension income before yearend,” says Courcelles.

He suggests you make sure clients are aware of what qualifies as pension income for this credit. If the client is under 65, qualified income includes retirement payments that he or she is receiving from an employer pension plan. If the client is 65 or older, those same pension payments would qualify — in addition to income from his or her RRIF, registered life income fund or prescribed retirement income fund (depending on the province in which your client lives), as well as the income portion of a non-registered annuity or an annuity under an RRSP.

Individuals receiving pensions this year can also take advantage of the new pension income-splitting rules. Fifty per cent of eligible pension income received by a spouse can now be allocated to the other spouse for tax reporting purposes. This will allow an individual in a high tax bracket to shift income to the spouse in the lower tax bracket.

This is a great opportunity for couples, maintains Paul McVean, regional wealth planning consultant for United Financial Corp, in Toronto: “For couples that have always been in different tax brackets, this can be extremely beneficial to them.”

Clients should keep in mind that Canada Pension Plan, old-age security, RRSPs and guaranteed income supplements do not qualify for the pension income tax credit. They should also think about what impact the income-splitting could have on clawbacks and credits for which they or their spouse may qualify.

“The idea of this benefit is it should produce a combined tax savings for both spouses,” says Courcelles. “Even if tax credits are affected, the tax savings may be a greater advantage.”

> Parents should look at taking advantage of the new physical fitness tax credit for children. (See page B8.) They can now claim up to $500 for eligible physical activities for each child under the age of 16 in that year.

“You need to keep your receipts and know what qualifies as an eligible program,” says Heather Evans, tax lawyer and partner for Deloitte & Touche LLP in Toronto. “This is a new tax credit that is going to be great for families.”

> Charitable donations have to be made by yearend in order to qualify for the relevant tax credit.

“Most people think the deadline for donations is the same as for an RRSP contribution,” says Evans. “They don’t realize that they don’t have until February; it has to be made by Dec. 31.”

Clients should also be aware of changes in the tax treatment of the donation of securities. (See page B12.)

@page_break@In 2007, gains on publicly listed securities donated to private foundations will be exempt from capital gains taxes. This follows rule changes in 2006 that made contributions of securities to public foundations tax-exempt.

> Clients paying tax instalments should determine if they are paying the correct amount.

“In a perfect world, each instalment would be 25% of what you owe,” says Evans. “But there are different ways of calculating the instalments, and taxpayers have the ability to look at all possibilities and use the method that is most advantageous to them.” IE