With less than five shopping days left until Christmas, there's no shortage
of opportunities to spend money as year-end approaches. In the mad scramble of
the holiday season, however, don't forget that there are several opportunities
to actually save some money, but many of them must be done before the end of the
year, or you've missed the opportunity.
Here are ten opportunities for some year-end tax planning:
1. TAX-LOSS SELLING
Still hanging on to those tech stocks you may have purchased in the glory
days of 1999 and 2000? Still hopeful for a recovery? Not to dampen your
optimism, but now may finally be the time to realize those losses.
Capital losses can be offset against capital gains realized in the current
year. If you have insufficient gains in 2004, you may carry the loss back to
offset gains realized in 2001, 2002 or 2003 or can carry forward the capital
loss indefinitely. Remember that you can also use the capital loss to offset any
capital gains distributions from mutual funds, many of which distributed last
Friday.
Any trades must settle by Dec. 31 for the loss to be realized in 2004. Keep
in mind that since it typically takes three days for a trade to settle, the
deadline for ensuring that a TSX trade settles by year-end is Dec. 24, since the
Toronto Stock Exchange is closed on Monday Dec. 27 and Tuesday December 28.
2. PAY ANY INVESTMENT EXPENSES BY DEC. 31
In order to be able to deduct any investment-related expenses on your 2004
tax return, the amounts must be actually paid by year-end. Such expenses include
interest you paid on money borrowed for investing, investment counselling fees
for non-RRSP accounts, professional accounting services for tracking rental or
business income and safety deposit box rental fees.
3. LAST CHANCE AT RESP CONTRIBUTIONS FOR 15 YEAR-OLDS
The Registered Education Savings Plan allows you to save for children's
post-secondary level education in tax-effective manner. The government will also
help you save by providing a Canada Education Savings Grant (CESG) equal to 20%
of the first $2,000 of annual RESP contributions per child or $400 annually.
If you have a child or grandchild who has never participated as a beneficiary
in an RESP, and who turned 15 sometime in 2004, Dec. 31 is the last chance to
contribute at least $2,000 to his or her RESP to be allowed to collect the
maximum CESG for 2004 and create eligibility for CESGs for 2005 and 2006. If you
miss the deadline, the child or grandchild will not be eligible for any grants
in the future.
4. FINAL RRSP CONTRIBUTION
If you turned 69 in 2004, you only have until Dec. 31 to make your last RRSP
contribution, if you plan to do so. You don't have the advantage of
procrastinating until March 1, 2005 like the rest of us do. If, however, you
have a spouse or partner who's under 70, you can continue contributing to a
spousal RRSP in his or her name, provided you still have contribution room.
5. CONVERTING YOUR RRSP
As above, if you turned 69 in 2004, you must convert your RRSP into either a
Registered Retirement Income Fund (RRIF) or an annuity by Dec. 31. Failure to do
so will result in the entire amount being taxable to you in 2004. Be sure to
discuss your RRSP options with your financial advisor before it's too late.
6. CHARITABLE DONATIONS
Dec. 31 is also the last day to make a donation and get a tax receipt for
2004. Scrambling to donate? Remember that many charities now offer online,
Internet donations where an electronic tax receipt is generated and e-mailed to
you instantly. In addition, both www.canadahelps.org and www.charity.ca have
numerous registered charities signed up for instant, last-minute on-line
donations.
7. GIFTS TO EMPLOYEES
If you're an employer, you have the opportunity to make up to two non-cash
gifts per year on a tax-free basis to your employees for special occasions such
as Christmas, Hanukkah, marriage, birthdays or other similar events where the
total cost of the two gifts is less than $500 (including tax) per year. Note
that this administrative concession by the Canada Revenue Agency extends only to
physical gifts and not to cash gifts (nor to near-cash gifts such as gift
certificates).
8. PURCHASE BUSINESS ASSETS
If you're self-employed or a small business owner, you may wish to consider
accelerating the purchase of new business equipment or office furniture that you
may been planning to purchase in 2005. Under the tax rules, you are permitted to
deduct, under the "half-year rule," one half of a full year's tax depreciation
("capital cost allowance") in 2004, even if you bought it on the last day of the
year. For 2005, you can then proceed to claim a full year's depreciation.
9. DELAY WITHDRAWALS UNDER THE HOME BUYER'S PLAN
Planning to buy a new home in January? You may wish to delay withdrawing
money from your RRSP under the federal Home Buyers' Plan until the new year to
allow you one additional year before repayments must begin. For example,
repayments of moneys withdrawn in December would need to be repaid beginning in
2006. By waiting until January, you can delay repayment until 2007.
10. APPLY NOW FOR REDUCED SOURCE DEDUCTIONS FOR 2005
With the new year just around the corner, what better time to start planning
in advance for 2005, especially if you routinely get a large tax refund each
spring. By applying to the CRA to take into account various tax deductions, such
as RRSP contributions or childcare deductions, the CRA can authorize your
employer to reduce the amount of income tax withheld on your employment income.
This way you can pay less income tax over the year rather than overpaying and
then applying for a refund in April.
The benefit is that you get to keep your own money instead of loaning it,
interest-free, to the CRA.
To get a head start for 2005, now is the time to send a completed CRA Form
T1213 "Request to Reduce Tax Deductions At Source for Year(s) _____", with all
supporting documents to the Client Services Division of your local tax services
office to ensure that the tax deduction can be in place early in 2005.