Dec. 31 is the deadline for a number of tax-planning issues, tax-deductible items and other tax related applications.
If you plan to make a withdrawal from your TFSA (tax-free savings account) in the next six months or so, I suggest you consider doing it before Dec. 31. This would mean you could pay it back into the plan in 2013. If, instead, you defer until January to withdraw, then you must wait until 2014 before re-depositing.
For example, if it's your plan to withdraw this to cover your holiday credit card bills or take a winter vacation, then withdraw from the TFSA now.
Year-end is the last day for 2012 contributions to Registered Education Savings Plans and Registered Disability Savings Plans, which attract government grants.
The RDSP is limited to people who qualify for the disability tax credit.
For people who turned 71 in 2012 and have RRSP contribution room, Dec. 31 is their RRSP deadline (unless they have a younger spouse), as RRSPs must be converted to RRIFs before year-end. If these people wait until the usual deadline for RRSPs of 60 days after year-end, they will be prohibited from contributing, as it will be the year in which they turn 72.
Dec. 31 is the annual deadline for alimony and maintenance payments, medical expenses, child-care expenses, child fitness and artistic activity fees, public transit passes, moving expenses, political contributions, investment counsel fees and safety deposit box rental fees, repayments to your corporation that might otherwise become taxable, and several other tax-related expenses.
Deductible business expenses, which mostly relates to business owners and commission salespeople must generally be incurred within the year in order to be deductible.
If you can deduct depreciation on capital items such as office equipment or a car, buying before year-end allows you half of the usual full-year capital cost allowance (depreciation deduction), as this would be your year of purchase for the item. If you wait until January, you will still only get half the regular rate, but for all of 2013. The CCA rate allowed is always reduced by half in the year of purchase, so make it a short "year."
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, I suggest you claim both spouses' receipts on one tax return, so you deduct all but $200 of donations at the higher rate.
The deadline for selling stocks or mutual funds to realize a capital loss this year is even sooner than Dec. 31. You might want to do this in order to offset capital gains you have realized in 2012, capital gains distributions from mutual funds you own, or to carry back losses to any of the previous three years.
If you finish 2012 with more capital losses than capital gains, you may be able to apply those net capital losses to any of 2011, 2010 or 2009, if you paid tax on net capital gains in any of those years. You do this by filing a T1A Request for Loss Carryback when you file your 2012 return.
Ask your investment adviser for a realized capital-gains report for the year-to-date, to evaluate the need to realize losses, and then compare the market value of your investments to the book value shown on your statement. This will show the potential losses to be realized by selling. You have a likely sale deadline of Dec. 21 in order to have your trade (investment sale) settle in 2012. Check with your adviser for that company's deadline.
If you still want to own the stock or fund, you can buy it back 31 days later, but you may also substitute for it a similar investment that's expected to act the same way in the near future.
If you have potentially significant tax claims or complicated issues, consult your tax adviser now. You can't go back after the deadline.
Dollars and Sense is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized professional advice, please consult a tax expert for your individual tax situation. David Christianson is a financial planner.