Personal Finance

Winnipeg Free Press - PRINT EDITION

It's time to focus on reducing your taxes

By: David Christianson

4/12/2009 1:00 AM | Comments: 1

Yes, it's that time again -- time to focus on reducing taxes for 2009. The good news this year is that there is less focus on capital losses, which was the overriding issue at this time last year.

Nevertheless, review your investments outside of RRSP or RRIF and ask your adviser for a realized capital gains report for the year to date. If you have net capital gains realized this year, then look at opportunities to sell securities that have declined in value since their initial purchase, in order to realize the capital loss and offset those current-year gains.

Confirm that the Adjusted Cost Base (ACB) or book value shown on your statement is accurate and can be depended upon, and sell before Dec. 24, for use in 2009.

If you reported taxable capital gains in any of the last three tax years, you have a chance to recover the taxes you paid on those gains, by realizing overall net losses this year and carrying those losses back to the previous years. You do this by filing a T1A Request for Loss Carryback when you file your 2009 return.

The tax rules allow you to buy the same investment back 31 days later, if you still want to own it, but the best idea may be to immediately purchase a close substitute.

This year you will also look at gains in your TFSA, which you can realize tax-free. Thanks to the timing, most of our clients have earned 35 per cent or more, and some have doubled their money. In situations like that, it may be worth realizing some profit and going to a more conservative investment, to lock in some of the profit.

Similarly, if your children or grandchildren have "in-trust" accounts and they are earning less than $10,000 or so in total income, consider triggering capital gains on those investments, on which they will pay no tax, and decrease their future taxable capital gain.

Renovate (and track receipts)

The Home Renovation Tax Credit is a one-time program which allows a 15 per cent tax credit on qualifying home or cottage renovation expenditures between $1,000 and $10,000, incurred by the end of January. If you can't get the work done by the deadline, you can purchase material and claim that. There is a long list of qualifying expenses that CRA has clarified during the course of the year, but the guideline is that they be improvements of an enduring nature. Electronics and wide-screen TVs don't qualify, but most landscaping does, for example.

For details, go to www.cra-arc.gc.ca/hrtc/

Give generously

Donations reduce your taxes by about 27 per cent of the first $200 you donate each year, and 44 per cent of all donations above that amount. Dec. 31 is the deadline. If you are married, claim both spouses' receipts on one tax return, so that you maximize the higher rate credit on the amounts above $200 of donations per year.

You can combine the donation and capital gains strategies by donating stocks or mutual funds on which you have large gains directly to a charity, rather than donating cash. You will get the same 44 per cent tax credit, but the gain is tax free if you donate the securities "in-kind" and let the non-taxable charity sell them and claim the profit.

This works especially well with flow-through shares which give you a 100 per cent (or more) tax deduction for buying them, but have zero cost base when calculating capital gain.

Take those deductions

Certain investment expenses are deductible, such as interest on loans taken out to invest in a business or an income-producing investment. Deductible fees paid to an investment counsel or investment custodian, rent on a safety deposit box, and accounting fees for calculating investment or rental income can be claimed if paid by Dec. 31.

Business owners, self-employed or commissioned salespeople can accelerate deductible expenses by paying people or buying equipment prior to year end. On the list would be computers, software, vehicles, office supplies, maintenance and repairs, legal and accounting fees, salaries and bonuses, and business or educational travel.

Purchases of computers, software and peripherals are now fully deductible in the year of purchase, while furniture, equipment or vehicle purchases will allow for a deduction of half of the full year depreciation for 2009, even if you only own the property for a few weeks. If you have the ability to legitimately defer billings or income to 2010, then do it. That can defer tax for a year.

David Christianson and his team at Wellington West Total Wealth Management Inc., provide one-stop financial solutions for people with $2 million to $10 million of assets. You can email him at

dchristianson@wellwest.ca

Republished from the Winnipeg Free Press print edition December 4, 2009 B5

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