Welcome to Soundbites – weekly insights on market trends, and investment strategies, brought to you by Investment Executive, and powered by Canada Life.

For today’s soundbites, we get some year-end tax tips from John Yanchus, a tax and estate planning consultant with Canada Life. We talked about capital gains reporting, making the most of charitable donations, and we started by talking about work-from-home deductions.

John Yanchus (JY): For the 2020 taxation year, there were two methods available for employees to claim home office expenses. The temporary flat-rate method, which provided a deduction of $2 per workday at home, up to a maximum of $400. This was brand new in 2020. It is not clear for the 2021 taxation year if this option will be made available. And further, no direction has been provided if the work-at-home status is required by your employer or optional. Then, there was the detailed method, which has not changed, except to include home internet access fees as an eligible expense. If you use the long form, you may be allowed to claim more deductions, but it does come with a bit of onus in keeping better records, keeping receipts, and more complex reporting. For most people, the short form would be the easiest way to make this claim.

Making the most of charitable donations.

JY: With charitable donations there’s a couple of things to think about. First is the philanthropy side of things. Making donations can be very beneficial to society, to your legacy, and to your family. There’s a couple ways this can be done. Either by beneficiary designation, by making cash donations, but from the tax perspective an in-kind donation may make more sense. You have the ability to take advantage of a zero-capital-gain inclusion rate, which means that the capital gain that will arise on the asset that you donate is not payable by you, but you still get the full fair-market value donation tax receipt.

Claiming capital losses to offset capital gains.

JY: From the investment standpoint, one invests to generate income in the future. If we take advantage of selling an asset for tax purposes while that investment is decreased in value, the investment side of that equation seems to be neglected or ignored. I think the age-old adage of buying low and selling high should be adhered to here, and not sold at a low just for tax purposes. Where an investment has either dropped in value on a permanent basis, or has been fully impaired, then that is a great reason to sell that stock, and the tax advantage can be taken at that point.

Making one-time overcontributions to an RRSP.

JY: In the year you are 71, prior to when you’re turning 72, if you have RRSP contribution room or if you have earned income in that year, the RSP contribution room will come available January 1st of the year following. If that is the case, you do have the ability to make a one-time contribution that is subject to a penalty — 1% per month — but if we do it in December of that year then you would only be subject to the one month of penalty, but what you would exchange for that would be the full amount of the RRSP contribution of the earned income you made in that prior year. Now, this is a situation you should assess on its own merit, but the advantage could be beneficial to the individual.

And finally, when it comes to tax planning for the end of the year, what are the key takeaways?

JY: Some people are a little bit short-sighted, looking for the benefit in this year only. So, looking at a tax deduction for this year but not considering what would be the alternative if nothing was done in this year and it was done in a following year. Some people are short-sighted not looking five, 10, 20 years down the road.

Well, those are today’s Soundbites, brought to you by Investment Executive, and powered by Canada Life. Our thanks again to John Yanchus of Canada Life.

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