2019 Year-End Tax Planning

It is almost the end of the year and the thought of completing your tax return starts to pop up for everyone, whether it be paying extra or expecting a refund. Although most of us realize that paying taxes is part of life and essential to ensure that we continue with our current lifestyles, we don’t want to pay more than our fair share. While we should always have tax planning strategies throughout the year, there are certainly several issues that should be thought of for December and/or January. You should consider the following planning points:

Charitable Donations

If you are planning on donating to your favorite charity in December or January, it would be more beneficial to do so in December. If you make the donation prior to December 31st, you will receive a tax credit based on the amount on your donation receipt on your upcoming tax return. By making the donation in January 2020, you would not receive the tax credit until April 2021. 

Investment Tax-loss Selling

Review your investment accounts and determine if you are satisfied with your investment mix.  If not, you may wish to consider selling investments that no longer meet your strategy and have unrealized losses.  These losses can then be used to reduce any capital gains from investments that you have sold during the year, or in any of the last three years.

When planning to use this strategy, look at selling investments that you no longer wish to hold.  If you plan to re-buy the stock within 30 days of the sale, your loss may be denied due to “Superficial Loss” rules.

Registered Retirement Savings Plan (RRSP)

An often-forgotten tax strategy involves the proper planning of flexible tax deductions. RRSP contributions reduce your taxable income dollar for dollar. This means, if your taxable income is in the higher tax brackets, you will receive a larger benefit than if you were in the lower tax bracket. If you are expecting to have lower income this year, consider delaying your RRSP contribution until after March 2020. On the other hand, if you expect to have high income this year, consider making your RRSP contribution before February 2020 to receive the deduction on your next tax return.

Acquisition of Business Assets

If you are in business and your business has a December year-end, consider making any capital purchases in December rather than waiting till January or February.  This will speed up your claim of capital cost allowance and thereby save tax.  The recent Accelerated Investment Incentive means your tax deduction will be significantly larger in the year of acquisition.   Conversely, if you are looking at selling a capital asset, consider doing this in January rather than December to defer the tax consequences of the sale.

Vehicles for Business Purposes

If you are using your vehicle in your business remember to record the odometer reading at December 31st to enable you to calculate the total kilometres traveled on your vehicle.  This information, along with your business kilometres and your automotive expenses will allow you to calculate accurately your business deduction expense for your vehicle.

These are just a few of the many strategies to keep in mind. Taking the time to review these issues will help reduce some of the concerns in your life and make your overall financial goals easier to achieve.