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Tax tips to consider before year end
Nov 18, 2014
1) it is almost always better to pay tax later. If you are considering taking some profits from the winners in your portfolio, consider waiting until after January so you won’t be paying tax until 2016. If you have unused or accrued capital losses consider selling your winners today and offset your capital gains with your allowable capital losses.
2) If you have investments that have dropped in value, consider selling these by the latest at Dec.24. This makes sense if you reported capital gains on your 2013,2012 and 2011 tax returns. You will be able to carry your capital losses back up to 3 years to offset gains in those years. Don’t sell your losers if you don’t have capital gains to offset.
3) Set up a TFSA ( 18 is the minimum age) if you haven’t done so already. The contribution limits were $5000.00 for 2009-2012 and $5500.00 for 2013 and 2014 for a total contribution of $31,000.00. The TFSA will allow you to grow investments tax-free and withdraw the funds later tax-free as well.
4) Giving a child assets before year end can reduce the value of your estate, saving income tax and probate fees. If you give your losing investments you’ll be able to claim the capital losses that are triggered when making the gift. If your child is an adult, they could sell the assets and contribute to her TFSA or RRSP to accelerate her own savings or pay down debt.
5) If you are thinking of donating to charity, you will save more tax by donating some of your winners in your portfolio. Any accrued capital gain on a security donated to charity is eliminated. Not only is the taxable capital gain zero, you can also get the donation tax credit.
6) If you have unrealized capital losses but no capital gains this year or in the past 3 years, consider transferring those losses to your spouse if he or she has capital gains that can offset the losses.
7) Rebalance your portfolio for tax efficiency. Capital gains and eligible Canadian dividends receive more favourable tax treatment than interest of foreign income so it is a good idea to think about the tax generated by your portfolio.