The following tax-planning ideas are valuable checkpoints towards meeting your long-term financial goals and putting you in a more favourable tax position in the future.
- Review your investment portfolio annually
A yearly review of your investment portfolio ensures you’re on track to reach your financial goals. If you have non-registered accounts, the review can identify opportunities for tax-loss selling. This entails reviewing the performance of your investments, identifying holdings that have lost value, and selling them to generate capital losses to offset any capital gains. Capital losses can be applied in the current year, or in any future year. You can even carry net capital losses back up to three years.
- Make charitable and political donations by year-end
If you have a passion for a charitable or political cause, make sure to contribute by year-end. Registered charities, political parties, and other “qualified donees” will issue you an official donation receipt that can generate a substantial tax credit. The amount of the credit depends on the amount donated, and there are maximums to be aware of. For specific details, go to the CRA website and search “Charities and giving.” Keep in mind you don’t have to claim the donation tax credit in the year you make the donation—you can carry it forward for up to five years.
- Deduct interest payments on investment loans
If you borrow to invest in assets that generate interest income, dividends, rents, or royalties, then the interest on the loan may be tax deductible. This is only the case for non-registered investments, not investments in RRSPs, TFSAs and other registered accounts. Borrowing to invest can be a good strategy, but it’s not without risk. You are obligated to repay the loan even if the value of your investments falls. Note that capital gains are not considered to be income for tax purposes, and so interest from loans used to generate capital gains alone is generally not deductible.
- Maximize your RRSP contributions
Contributing to a Registered Retirement Savings Plan (RRSP) is one of the best ways to save for your retirement and reduce your current tax bill, because your contributions are tax deductible. For any given year, you can contribute to your RRSP up to 60 days into the following year (the deadline varies but usually falls around March 1 or 2). Unused RRSP contribution room can be carried forward, so in any given year your maximum contribution is this year’s limit plus your carry forward amount. To see your current contribution room, log in to the secure “My Account” portal on the CRA website, or use the MyCRA mobile app.
- Make any necessary TFSA withdrawals by year-end
A Tax-Free Savings Account (TFSA) is an excellent way to save and invest tax efficiently for the future while having the flexibility to make account changes when needed. You can contribute any time, up to your maximum contribution room in any given year. And you can withdraw funds tax-free any time. Funds you withdraw can be re-contributed during the following calendar year. So, if need to make a withdrawal, do it before December 31 because the amount will be re-added to your contribution room as soon as the calendar turns over. If you wait until January to make the withdrawal, you cannot re-contribute that amount until the following year.
By carefully reviewing your previous year’s Notice of Assessment with your investment advisor and accountant, you will better understand your tax position and possibly find ways to optimize your finances. Your CRA Notice of Assessment will include: your available RRSP contribution room for the year along with information about your income, deductions, credits and federal and provincial tax.
Book an appointment today 250-787-0365 to discuss specific strategies for your unique circumstances.