While many of your clients may regard April 30 as the tax deadline, the calendar yearend is a significant date for many tax-related transactions. What follows is a checklist of yearend tax issues that must be completed by Dec. 30 each year:
Charitable Donations
Remind clients that Dec. 30 is the final day on which to make a donation to a registered charity that can be claimed in 2011.
Note that flow-through shares offer additional tax benefits, but your clients should be reminded that the tax advantages of these shares — which can be donated in kind to a qualified charity — have been lessened by the 2011 federal budget. Previously, clients could claim the stocks’ adjusted cost base, says Doug Carroll, vice president of tax and estate planning with Invesco Canada Ltd. in Toronto. Now, they can claim only the shares’ original cost.
Tax-Loss Selling
Recent market volatility might “create some opportunities for tax-loss selling,” says Allison Marshall, senior manager of financial advisory support with RBC Wealth Management in Toronto. Disposing of an investment involves a three-day settlement process; in order to meet the Dec. 30 deadline, transactions must be initiated no later than Dec. 23 this year.
Clients can claim a capital loss by selling a security that has lost value, and then buy it back, as long the rules pertaining to superficial loss are adhered to. Your client cannot buy back the same security in the 30-day period before or after the settlement date of the initial sale.
Final RRSP Contributions
Remind those clients who turn 71 years old in 2011 that they have until Dec. 30 to make their final RRSP contributions before their RRSPs are converted into RRIFs.
Deferring Investments
This might not be a good time to make non-registered investments in vehicles such as mutual funds that have yearend distributions. Such purchases may result in a tax liability next April.
A fund that has generated taxable income and taxable capital gains will distribute these to its unitholders near the end of the year — usually by Dec. 15 — regardless of when your client purchased their units. Says Carroll: “[The client might] get a large distribution in the fund [even it] they’ve only been in there a short period of time.”
Better to wait until January, when distributions will apply to next year’s income.
Defer Capital Gains
Postponing unrealized capital gains also might be wise, especially if your client is going to be in a lower tax bracket next year. Taxes on gains realized in 2012 won’t become due until April 30, 2013.
If your client has net capital losses, Marshall says, he or she can apply those losses against any unrealized capital gains from the past three years. Those losses must first be offset by any realized capital gains this year.
RESPS
Remind clients with children that Dec. 30 is the deadline for making contributions to registered education savings plans that entitle them to the Canadian education savings grant. That date is especially significant for clients whose child/beneficiary turns 17 in 2011; this will be the last year that child would qualify for the grant. IE