Once again time for year-end tax planning

Hey there, time traveller!
This article was published 03/12/2021 (476 days ago), so information in it may no longer be current.

Yes, once again it is suddenly December, with year-end tax deadlines approaching, So, it’s time to put all your tax ducks in a row before you start tucking turkeys into the oven.

Last week we talked about the great opportunities for donating appreciated securities to charities, which makes the capital gain tax free, while providing you with a full tax receipt.

We suggested that you request a realized capital gains and losses report from your investment provider and ask about projected distributions for any funds or ETFs you own.

Tax Loss Selling

If you are approaching year-end with a large amount of realized gains and/or expected distributions, then carefully comb through your investment statements to see if you have any securities in a loss position. Consider selling those to offset the gains that will otherwise be half taxable.

With the large run up in the markets over the last 18 months, you may be hard-pressed to find very many losers. However, energy companies that you owned before the pandemic may have had tremendous recent gains, but still be worth less than you paid.

If you have an investment adviser, ask for that advice.

On the off chance you can generate total net capital losses that exceed your realized gains in 2021, that net loss may be used to recover taxes that you paid on capital gains in 2018, 2019 or 2020.

Work from Home

Employees who were required to work from home this past year should be able to claim an amount for each of those days as an employment expense.

Last year CRA created a simplified form and a “flat rate method” for this claim. Be sure to talk to your employer about getting a Form T2200S, though we don’t yet know for sure the method or amounts for 2021.

Self-Employed & Business

If you’re self-employed, think about advancing deductible expenses, rather than deferring them till next year, unless you will be in a higher tax bracket next year.

For example, if you buy computer hardware in December, you get a half-year of depreciation expense to deduct. If you wait till January, you still only get a half-year deduction, as 2022 would be the year of acquisition.

Generally, think about advancing deductions and deferring revenue. If you have work that extends over December and January, consider providing your progress invoice in January, rather than December.

Other deadline items

If you are planning a TFSA withdrawal, get that done before Dec. 31. Contribution room equal to your withdrawal will be returned to you Jan. 1.

If you wait until January to make a TFSA withdrawal, you won’t get that contribution room back until 2022.

Conversely, if you are planning an RRSP withdrawal or an extra withdrawal from your RRIF, wait until January, so you are taxed in 2022.

While the RRSP deadline is normally 60 days after year-end, the deadline is Dec. 31 for anyone who turned 71 in 2021 to make a contribution deductible in 2021. That’s also the deadline to convert your RRSP to RRIF or annuity, or it is all brought into income.

If you have loaned money to a spouse or child at the one per cent CRA Prescribed rate in order to avoid attribution of investment income, remember they must pay you the interest within 30 days of year end.

Review last year’s tax return for any deductions or credits you took, and make sure you make any required payments by Dec. 31.

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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.

David Christianson, BA, CFP, R.F.P., TEP, CIM is recipient of the FP Canada™ Fellow (FCFP) Distinction, and repeatedly named a Top 50 Financial Advisor in Canada. He is a Portfolio Manager and Senior Vice President with Christianson Wealth Advisors at National Bank Financial Wealth Management, and author of the book Managing the Bull, A No-Nonsense Guide to Personal Finance.