What You Need To Know About Year-End Tax Strategy

what to know about your year-end tax strategy

Tax time might seem ages away – the deadline for personal tax filing is April 30, 2014 – but are you aware of the end-of-year deadlines required to receive certain tax credits?

If you’re unsure how your current investments and savings strategies may benefit your tax filing, now’s a great time to chat with a financial or accounting advisor to explore your options. Jamie Golombek, managing director of Tax Planning at CIBC Private Wealth Management, says time is of the essence when it comes to year-end tax planning.

“There are certain transactions and things you need to do before the end of the year for you to claim those tax benefits on your 2013 tax return,” he says.

Assess Your Non-Registered Earnings

While taking a loss on your investments is generally a negative thing, there are certain tax benefits to be had from declining non-registered investments, such as stocks. “If you’ve got some non-registered investments, so investments outside of an RRSP, or outside of a TFSA, [that]  are in a loss position – so you’ve lost money on them and they’re worth less than what you’ve paid for them –  you may want to consider selling them before the end of the year to realize the capital loss,” says Golombek.

Once that capital loss is realized, it can then be used to counter capital gains realized during the year, and one can actually get a tax refund against any capital gains incurred over the past three years. While unused capital losses can be carried forward indefinitely, Golombek says, “The real advice here is to take the time to review your portfolio, your stocks, your mutual funds before the end of the year, and take the opportunity to crystallize the tax loss. If it makes sense to do so from an investment perspective, then you may have the ability to use that loss and shelter other gains you’ve had during the year, or get a refund for taxes that you’ve paid on capital gains that you’ve paid over the past three calendar years.”

He adds that this “absolutely” must be completed before December 24.

It Pays To Give

If you’re a frequent charitable giver, chances are you know your donations must be complete before December 31 to claim a donation tax credit come 2014. Those donating for the first time have extra incentive this year to claim their gifts; the 2013 Federal Budget has implemented the First-Time Donor’s Super Credit, which boosts the amount paid back to givers.

Currently, the Charitable Donation Tax Credit pays 15 per cent on donations for amounts up to $200, and then 29 per cent on amounts exceeding this cutoff. With the FDSC, donors will receive 40 per cent on top of the calculating rate for amounts below $200, and a whopping 54 per cent on those over $200, up to a limit of $1,000. To qualify, the donor, their spouse, or common law partner, must not have claimed CDTC within the previous five years. As well, only money donations and gifts qualify.

Golombek also suggests the option of gifting successful investments to charity through a special incentive program for donating appreciated public securities. “Let’s say that a stock or mutual fund has gone up in value tremendously,” he says. “You have an opportunity by gifting that share or mutual fund in kind to a Canadian charity. Then not only will you get a donation receipt for the same market value, but you pay no capital gains tax at all.”

Other Required Year-End Tax Strategy Transactions

Interest Expenses: Golombek advises those who have borrowed for investing or small business purposes to claim the interest they’ve accrued on their taxes – but to do so, all interest must be paid by year end.

Safety Deposit Boxes: Last call for those who claim the rental fees on these safety deposit boxes- this is the last year they can be deducted. To do so, all rental fees must be paid prior to December 31. Says Golombek, “There was a new rule passed this year that says starting in 2014, you can no longer deduct the safety deposit box fees. You want to make sure that you’ve paid that by the end of the year, otherwise you’ve lost that deduction permanently.”

Living Expenses: December 31 is also the cutoff points for childcare expenses, medical expenses, interest on certain student loans, and support payments.

Talk To Your Financial Advisor

If you aren’t sure whether your transactions are tax deductible, it’s best practice to seek out the help of a pro. Golombek suggests sitting down with a financial advisor to carefully review your portfolio to identify any opportunities through accrued losses on stocks, mutual funds, or gains through charitable giving.

“You could talk to your advisor specifically and say, ‘hey, I’m thinking about making a big donation in the next year or so.’ If you do it before December 31, you get the receipt right away and you pay no tax at all on the accrued gain,” Golombek says. “So that’s certainly something your financial advisor could help you with, along with interest expenses before the end of the year, and of course those safety deposit box fees.”

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