Even with only a couple of weeks remaining in 2012 and the holiday season in full force, there are still some (very) last minute tax tips advisors can share with clients.
In light of the festive season, Toronto-based Ernst & Young LLP offers these 12 days of tax tips for clients to discuss with you, the advisor, or with a tax expert:
> Day one: Tax-free savings account (TFSA) contributions
Remind clients with TFSAs to use up their $5,000 contribution limit by December 31. As well, suggest that clients start donations early next year in order to take full advantage of the increased limit of $5,500.
> Day two: Registered Education Savings Plans (RESP) reminders
Make sure clients take advantage of federal grants for a child’s or grandchild’s education by contributing to RESPs before year end.
> Day three: Contribute to Registered Retirement Savings Plans (RRSP) sooner rather than later
While clients have until March 1, 2013 to contribute to their RRSPs, it’s important to remind them that the earlier they save the more time their investments have to grow.
> Day four: One last RRSP contribution
If a client turned 71 in 2012 remind him or her to make any final RRSP contributions by the end of the year. As well, talk to clients about their RRSP maturity options — opening up a Registered Retirement Income Fund or purchasing an annuity.
> Day five: Ask about tax-deductible expenses
Remind clients to pay for all expenses in 2012 to take advantage of the available tax deductions. Fees that qualify for tax deductions include: safety deposit fees, professional dues, investment counsel/management fees, charitable donations, political contributions, medical expenses and child fitness and arts programs fees.
> Day six: Suggest clients get rid of some debt
Talk to clients about eliminating, or at least reducing, debt that has non-deductible interest. For example, suggest to clients that they pay down personal debt before reducing investment or business related liabilities on which interest may be deductible.
> Day seven: Take a look at clients’ rides
Find out if clients with a company car are eligible for a reduced standby charge, which relates to the availability of the vehicle for personal reasons, as well as a lower operating cost benefit.
> Day eight: Have clients talk to the Canada Revenue Agency
For clients who will receive tax refunds because of RRSP contributions or child-care costs, suggest that they talk with the CRA about authorizing their employers to reduce tax withheld from their salaries in 2013.
> Day nine: Talk about income-splitting loans
Before the end of the year, talk to clients about income splitting strategies such as intra-family loans. The interest rate applicable to the exemption from income attribution on family loans will remain at 1% for the final quarter of 2012, meaning it remains a sound tax-saving opportunity for clients with liquid assets who are looking to split their income with family members.
> Day 10: Review investment portfolios
Review your clients’ portfolios to see if there are any opportunities to sell securities at a loss to reduce taxes on any capital gains from the previous year. Remember, if a client’s losses in 2012 exceed his or her gains, the losses can be claimed against net capital gains from the preceding three years.
> Day 11: Tell small-business owner clients to buy now
Suggest that self-employed or unincorporated business owners clients who intend to make a capital purchase for their businesses do so before year-end. That way those clients can a depreciation deduction on their businesses for 2012.
> Day 12: Give clients a raise
It might be best for Quebec or Ontario-based business owner clients who are contemplating increasing their salaries or dividends to do so this year rather than next. A new personal income tax in those two provinces will come into effect into 2013 and so business owners can save taxes on salaries and investors can benefit from a lower capital gain tax rate if the transactions are completed before December 31.