With the arrival of cooler and shorter days, it is a reminder that there are only a few months remaining in the calendar year. Are there actions that you can take before year end to impact your financial position? Here is a checklist to act as a starting point:
☑ Realize capital losses to offset capital gains.
Where prudent from an investment perspective, consider realizing capital losses to offset capital gains. Tax losses can be carried back three years or carried forward indefinitely. Net capital losses of prior years continue to be deductible against taxable capital gains in the current year by adjusting their value to reflect the inclusion rate of the capital gains being offset. Thus, a capital loss realized prior to the inclusion rate increase in 2024 will fully offset an equivalent capital gain realized after the change. Be aware of the superficial loss rules, which defer or deny the capital loss if you or anyone affiliated with you acquires the same security within 30 days before or after the date of the loss transaction.
☑ Split income, save tax.
There are a variety of ways to split income. For example, you may elect to split eligible pension income with your spouse (partner) on your tax return. Spouses may also apply for CPP pension sharing. There may be an opportunity to open a spousal RRSP. Business owners may consider paying reasonable salaries to spouses/children for services provided to a self-employed business. For more ideas on income splitting, call the office.
☑ Contribute to your RRSP.
You don’t have to wait for the March 3, 2025, deadline to make contributions. Contributing as early as possible can allow for greater tax-deferred growth. Consider also that deferring the deduction may provide tax-planning opportunities. For instance, if you make a contribution, you can choose to delay the RRSP deduction to a future year, perhaps one in which you have a relatively higher income to offset the higher potential tax.
☑ Make RESP contributions.
If you hold a Registered Education Savings Plan (RESP), consider contributing before year end to benefit from the Canada Education Savings Grant (CESG) for 2024.
☑ Don’t forget the pension income tax credit.
If you are 65 years of age or older and do not have eligible pension income, you can purchase an annuity or open a small Registered Retirement Income Fund (RRIF) before year end in order to claim the federal pension income tax credit for 2024.
☑ Convert your RRSP if you turn(ed) 71 in 2024.
If you turn(ed) 71 this year, you have until December 31 to make any final contributions to your RRSP, and not the regular March 3, 2025, deadline, before converting it into the RRIF or registered annuity.
☑ Review asset location.
If you have earned some highly-taxed interest income in a non-registered account, there may be an opportunity to review asset location. Or, consider whether a different type of fixed-income asset can reduce your tax bill while still meeting your risk tolerance and personal objectives. We can help.
☑ Withdraw from a TFSA before year end.
If you need to access funds and are looking to withdraw from the TFSA, consider doing so before year end. Contribution room resets itself at the start of the calendar year, so waiting until January 2025 would mean that this contribution room will not be available until the start of 2026.
☑ Consider charitable donations.
Make eligible charitable donations before December 31 to benefit your 2024 taxes. Gifting publicly-traded securities with accrued capital gains to a registered charity not only entitles you to a tax receipt for the fair market value, but may also eliminate the associated capital gains tax (there may be implications for taxpayers subject to the AMT). However, shares must be donated “in kind” — do not sell them first and donate the proceeds or part of the tax benefit will be lost. For securities that have declined in value, consider selling them and donating cash. You will be entitled to the capital loss (where applicable), as well as a donation tax credit.
For assistance with these or other actions, please call the office.
