Year End Tax Planning

Tax Topics with Fin

By Fin MacDonald, Fin Tax Service

Fin MacDonald has over 20 years’ experience providing retirement and Income tax planning advise. Readers are however cautioned that responsibility falls on the taxpayer to ensure that all information is adequate and correct.

Part One

Scams

At the risk of sounding like a broken record, (if, dear reader, you are old enough to know what a record was!) the scam artists are still plying their nasty trade. The Canada Revenue Agency (CRA) will NEVER: ask for your credit card information, ask you to buy and send any sort of gift cards, send you a refund by e-mail, or demand that you pay cash or go to jail. However, I have complained to the Taxpayer Ombudsman about how the CRA, by the following actions:

  • Ending counter service at District Tax Service Offices

  • Not answering over 50% of Taxpayers’ attempted phone calls, and

  • Giving incorrect answers over the phone in over 40% of the calls; rising to over 85% for complicated questions

has enabled the scammers to continue victimizing Taxpayers. I’m not holding my breath for a positive CRA response.

Election Donations

Donations to a Registered Provincial or Federal Political Party attract provincial or federal tax credits. If you make a provincial or federal donation before December 31, you will receive a receipt in the mail to use on your 2018 Tax Return. Donations to Municipal or School District Candidates do not provide for any tax credits.

In this article I will take a first look at various steps that can be taken in tax planning as the year end approaches. I will look at different situations, starting by following up on last month’s Tax and Investing column.

Investors and Year End Tax Planning

As the year end approaches there are several things, from a tax point of view, that may be done. Year End Tax Loss Selling is one. Looking at your portfolio, are there stocks (or mutual funds) that have fallen in value; are there stocks that have increased? Selling your losers and taking your gains from your winners may be the answer. Looking at the calendar, December 21 may be the last day for trades to clear in 2018. If you have losses carried forward from previous years, these may be applied against this year’s winners. If you are a retired investor who receives income-tested benefits, postponing the sale of your winners until the new year will both postpone the payment of taxes due until April 30, 2020, and, postpone by a year the impact on your Guaranteed Income Supplement or SAFER payments.

Another strategy to look at is the Spousal Loan for Investment Purposes. By loaning money to your spouse, s/he may then invest the money. The gains/losses and other investment income earned will then be in his/her hands. This year’s Prescribed Interest Rate is 2%; this is the rate the CRA requires to be charged on investment loans to spouses. An example: Jill and James are spouses. Jill loans James $20,000 to invest. James must pay the interest due ($20,000 x 2% = $400) by January 30, 2019. By making the required interest payment each year, the income earned will be in James’ hands. The interest James paid will be deductible for the year he made it. Jill will have to report the $400 on her 2018 Tax return (when the income is earned).

Self-Employed and Year End Tax Planning

Following up on the Spousal Loan for Investment Purposes discussed above, a spouse may loan their partner money to start or use in their business. These loans do not require interest payments back to the loaning spouse, and the income they yield is reported by the spouse owning the business.

As summer ends, for those of us who are self-employed, it’s time to take a look at what sort of year it has been. If your revenues are up it may make sense to look at your expense side. Is it time to replace the large items that you use in your business? With the 50% rule on Capital Cost Allowance of new purchases, these next few months are a good time to purchase replacements. Need new computers, vehicles or other high value items? Time to buy and get a head start on writing the cost off. Similarly, with supplies, how are your inventory levels of the smaller items you need? Ordering supplies before year-end allows them to be deducted from this year’s income.

Is your professional or trade group having a convention or conference in Vancouver or Toronto? Two such meetings per year may be expensed. Time to increase employee’s wages or benefits? Extended Medical and Dental Insurance for you, your employees and families are deductible from your business income; without the 3% deductible of net income required to claim them as medical expenses.

Next month, in Part two of Year End Tax Planning, I will look at Medical Expenses, Charitable Donations, Federal and Provincial Tax Credits for Education and Child Credits, and look ahead to RRSP season. As always, dear readers, I look at tax matters through my lens of Helping You To Keep More Of YOUR Money.

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