Now that 2014 is winding down, here’s a reminder to take advantage of some last-minute tax tips before the time runs out.
Tax-loss selling: Sell investments with accrued losses to offset capital gains realized in this year or the prior three years. The trading date must be no later than December 24th to settle three business days before December 31st. Remember the superficial loss rules which say that you or an affiliated person (including a spouse, a corporation she controls, or a trust of which she is a major beneficiary) cannot buy their losing investments back within 30 calendar days. Otherwise, the loss is added to the cost base and you will not get to realize it right away.
Transferring a losing investment in-kind to a registered plan, so as to realize the loss without actually selling it isn’t permitted. Instead, sell the investment, then contribute it back to an RRSP or TFSA, then 30 days later, if you still want it, buy it back. You can purchase similar securities, for example, if selling one bank’s stock, one could purchase another bank’s stock while waiting the required 30-days.
Consider a prescribed-rate loan to a spouse: CRA has extended the 1% prescribed interest rate until March 31, providing an extended opportunity to split income between spouses with significantly different incomes.
Did you turn 71 this year? If you turned age 71 in 2014 you must convert your RRSPs to a RRIF or registered annuity before the end of the year and start taking income by the end of 2015. A planning idea often recommended is to make a one-time $2000 over-contribution to your RRSP in December, before conversion. Even though you may have earned income in 2014 generating RRSP room for 2015, you will not able to contribute because you are now age 72. So, even though you will pay a penalty tax of 1% on the over-contribution in 2014, when RRSP room opens up January 1, 2015, the tax penalty disappears. You can then deduct the over-contributed amount on your 2015 tax return. If you have a spouse or partner who’s younger than 71, they can continue by using a spousal RRSP and doesn’t need to over-contribute.
No RESP? Here’s a big opportunity for children or grandchildren who don’t have an RESP and turned 15 this year; make a contribution of $2,000 by the end of 2014 and qualify for the Canada Education Savings Grant.
Make an extra RESP withdrawal to soak up income earned on a completely tax-free basis. If your children or grandchildren are RESP beneficiaries and started attending school in 2014, they have until the end of the year to take out educational assistance payments, which are taxable in their hands. We recommend students take out these payments if they have personal tax credits they won’t use, such as the basic personal amount or tuition credits.
Make your Private Health Spending Plan (PHSP) claim: Be sure you take advantage of any unused spending room in your plan to expense any qualifying medical or dental health costs that you or your family incurred in 2014.
Check with your accountant or professional tax advisor to see if that any of these tax saving tips will work for you.
Image licensed through Shutterstock