2014 Year-end Tax Planning for Individuals
Tax planning should be considered all year round, not just at year-end or when you file your tax return. Nevertheless, there are still many time-sensitive issues that you need to address before January 1 and early 2015 to reduce your taxes for 2014.
Maximize your contributions to RRSPs, RESPs and TFSAs
There are many articles on these registered plans if you need guidance on which registered plans to contribute. All these three registered plans allow you to earn investment income without paying taxes on them. However, only the RRSP contributions will be deductible to reduce your 2014 taxes, if you made the RRSP contributions before March 2, 2015. The actual tax saving will vary depending on the marginal tax bracket you are in. For example, for an individual living in Ontario with employment income ranging from approximately $56,000 to $88,000, an RRSP contribution of $10,000 would result in tax savings of approximately $3,100.
RRSP retirement planning
If you turn 71 and must wind up your RRSP in 2014, you only have time until December 31, 2014 to make a contribution to your RRSP for 2014. Making a final contribution can result in tax saving if the future withdrawals are to be taxed at a lower tax rate.
Tax loss selling
If you own investments with accrued losses and had realized capital gains during 2014 or in any of the three prior years, consider selling the investments before year-end to realize the loss for applying against the realized capital gains. All the last minute trade should be completed on or before December 24 with your broker’s confirmation of the settlement date. It is also critical not to repurchase the same or similar investment within 30 days before or after the sale. If you do, the superficial loss rules would apply to deny the loss and the denied loss would be added to the cost base of the repurchased investment. The superficial loss rules also apply if you triggered the loss by selling the stocks to an affiliate person, including your spouse and your spouse’ RRSP, your own RRSP or a company controlled by you and/or your spouse.
Transfer loss to a spouse who has realized gains
If you own investments with accrued losses but cannot use the capital losses, the superficial loss rules that I talked about above can be used to transfer a capital loss to your spouse who has realized capital gains in the year or prior three years. However, for the superficial loss rules to apply, your spouse must hold the investment for more than 30 days before selling the investment to realize the loss. Since we are already in December, any capital losses to be transferred can only be realized by your spouse in 2015.
Use of family loans for income splitting
If you have a spouse or another family member with little or no other income, you can reduce your family’s taxes by making interest-bearing loans to the lower-income family members for investment. If a loan is advanced before December 31, 2014, the interest rate will be locked at the current interest rate set by the CRA, which is 1% only. The investment income earned by the lower-income family members, net of the interest expense paid to you, will then be taxed at the lower tax rate, provided any interest owed on the family loans for the year will be paid before January 30 of the following year. It is very important to have the annual interest paid no later than 30 days after the year-end. It is because a late payment for one year can cause this income splitting arrangement to become ineffective not only for that particular year but also for all the subsequent years.
Donate public securities with gains directly to charitable organization
The tax benefits of donating publicly securities instead of cash is that you will not have to pay tax on the inherent capital gains from the disposition of the securities while still receiving donation receipts equal to the fair market value of the securities at the time of the donation.
Relocation planning
If you are planning to move to another province around year-end, you should bear in mind that your province of residence on December 31, 2014 will generally be the province to which you pay your 2014 provincial taxes. If you are moving to a lower-tax province, you may want to move there before December 31. On the other hand, you may want to delay your move until the new year if you are moving to a higher-tax province.
Child fitness tax credit
In October 2014, the federal government announced that the child fitness tax credit be doubled to $1,000 starting for the 2014 taxation year. You may want to enroll your children in eligible fitness activities and make the payments before year end to maximize the 2014 credit.
We Can Help
We are a Toronto Chartered Accountant firm with 20 years of specialized experience in Canadian domestic and international taxation. We can assist with
- Cross border taxation;
- Business and succession planning;
- Canadian personal and corporate tax returns;
- Corporate tax planning and reorganization;
- Retirement planning;
- Estate planning and inheritance tax advice; and
- Tax audit dispute and resolution.
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The information in this article is general in nature and does not constitute professional advice. We recommend that you obtain the appropriate professional advice before acting on any of the information contained herein.
