Year End Tax Planning Tips

As another year comes to a close it’s time to look at any last-minute tax planning strategies that you may want to take advantage of before Dec 31.

To start, consider some of the routine year-end strategies such as:

Tax Loss Selling – Selling investments with accrued losses at year end to offset capital gains realized in other parts of your portfolio. For this year, Dec 27 would be the last day to place such a trade to have it settled before year end. You also need to be careful not to repurchase the same investments inside of 30 days or you could be offside of the superficial loss rules and have your capital loss denied.

RRSP Conversions – For anyone who turned 71 in 2018, you have until Dec 31 to convert any RRSP accounts you have over to a RRIF or registered annuity. Even though they must be converted in the year you turn 71, you aren’t required to draw any income out until the following year.

Paying Certain Bills – There are several tax credits that you might be able to qualify if you pay outstanding bills before year end. For example, if you qualify for the Disability Tax Credit and you have done renovations in your home to make it more accessible, it might make sense to pay the remaining costs before Dec 31 to claim up to $1,500 worth of goods and services used.

A similar bill settling strategy might make sense for outstanding or known upcoming medical expenses if those extra amounts put you over the 3% of net income or $2,302 minimum threshold.

Open an RDSP Account – Again for those that qualify for the Disability Tax Credit, I would strongly recommend opening a Registered Disability Savings Plan if you qualify and haven’t done so already, especially if you fall into a lower income category. By doing so before year end, you may qualify for additional government grants that you otherwise will lose out on.

Consider a TFSA Withdrawal – If you have plans to pull some money out of your TFSA account and put it back in at some point next year, it might make sense to do the withdrawal before year end so that you regain the contribution room on Jan 1, 2019 instead of having to wait until Jan 1, 2020.

One end of year strategy that we haven’t discussed in previous year-end columns is the planning surrounding the new rules for tax on split income (TOSI) that will affect many business owners. I have previously written an entire column on the TOSI rules and won’t repeat all the information here, but it is important to figure out how they might apply to you.

For those affected, there is potentially still time to utilize some strategies including a corporate share structure re-organization. This might allow your spouse to meet the laid-out conditions and receive dividends from the corp if they’re in a lower income category.

Also new for this year, business owners may want to pull some extra income out of their corporations before year end if they’re getting close to the new passive income rule limits and they need to preserve their small business deduction limits moving forward.

Finally, the end of the year is also an excellent time to do a general review of your overall situation and tax efficiency of your investment and financial plans. While you’re spending a few minutes considering if any year-end tax strategies would help you, also look forward into 2019 and beyond to make sure your overall plans are as tax efficient as they can be.