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Year-End Tax Tips

December is synonymous with tax planning, as many must report their income for the calendar year. Here are some things you should consider to optimize your situation.

Capital Gains and Losses

It may be appropriate to sell some securities to take advantage of a capital loss and reduce your taxable income. Some taxpayers can optimize their tax position this way, including those who might have to repay federal Old Age Security pension. For 2015, the latter is reduced when the income of an individual exceeds $72,809.

However, if you plan to repurchase a security that you sold at a loss, beware of "superficial loss" rules. If you declare a loss on a security and you, or a person affiliated with you, buys it in the following 30 days, the loss will be "suspended" and can not be declared until the newly-bought securities have been sold without being repurchased within a period of 30 days.

It may also be advantageous to trigger a capital gain by selling shares if you are about to lose any tax advantages, especially if a balance of non-capital loss or a charitable donation expires on December 31.

Charitable Donations

The law provides a tax credit for charitable donations during the year. The first $200 is eligible for a tax credit at the rate of 32.5% and the excess, at a rate of 48.2%. Therefore, if you plan to make donations in early 2016, it is in your interest to do so this month to maximize your tax refund.

TFSAs

If you plan to withdraw from your TFSA at the beginning of the next year, it would be better to do so this month (December) in order to optimize your situation. A withdrawal in 2015 will allow you to reinvest the funds starting January 1, 2016. If the withdrawal is carried out in 2016 instead, you must wait until January 1, 2017 to re-deposit any amounts withdrawn, which will cause you to lose many months of income sheltered from tax.

RRSP Contributions

You have until February 29, 2016 to contribute to an RRSP for the 2015 tax year. Contributing to your RRSP as soon as possible will maximize the tax-free growth of your portfolio.

Expense Payments by the End of the Year

Some expenses must be paid by the end of the year in order to claim a deduction or tax credit for 2015. These expenses include investment expenses, medical expenses and child care expenses.

Mutual Funds

The purchase of mutual fund units must be carefully analyzed when they are acquired in December. Funds that operate through a trust distribute their income in December. You might therefore acquire units and have to pay taxes on income that you never earned. To avoid that risk, you can purchase incorporated funds.

Conclusion

The foregoing is not a comprehensive list of tax considerations to take into account. It is up to each individual to ensure that all aspects of their situation are considered by December 31.

The author

Patric Saint-Onge

Patric Saint-Onge

CPA, CA, LL.M.Fisc., TEP, Tax Specialist.
Patric Saint-Onge has been a tax specialist for over 15 years. In 2002, he co-founded the firm Corriveau Saint-Onge Inc. which specializes in Canadian taxation.

Mr. Saint-Onge has worked on major tax cases, applying complex fiscal concepts throughout his career.

He has also been a speaker on numerous occasions for both industry professionals as well as the general public. Among others, the Institute of Chartered Accountants of Quebec has requested his services as a speaker. He has also been invited as an expert in taxation on several television and radio shows, and frequently collaborates with journalists covering the economy to help with articles on various topics.