November 2003 - Nr. 11
Financial Advice
Eduard Pohlmann
is a professional financial consultant with Investors Group, an industry
leader providing comprehensive financial planning and services. He is a
frequent speaker and commentator on financial planning and investments.
Make a list, check it twice - and get all the tax breaks you deserve
November 2003
That time of year is coming up again. The crucial period when procrastination leads to exasperation and, ultimately, the paralyzing and potentially costly effects of deadline-itis. No, this column is not about the frazzles and hassles of the upcoming holiday season. It's about your 2003 income taxes and your initial reaction will probably be, "Sure, but the filing deadline is months away - why bring it up now?" And the answer, from the perspective of sound financial planning, is this: By getting a jump-start on your tax preparation now, you'll maximize your current and future tax savings and avoid paying penalties. So, here's a checklist of year-end tax strategies that will help ensure you get all the tax breaks you deserve:
- Make installment payments on time. If you're required to pay quarterly installment payments, the last one for 2003 is due December 15 - so get it done now to avoid non-deductible interest payments and possible penalties.
- Make tax-break payments. December 31 is the deadline for most payments that qualify for tax credits and deductions - including certain medical expenses, child-care costs, child support and alimony, charitable and political contributions, deductible legal accounting fees, and professional and union dues.
- Make smart capital decisions. Trigger capital losses so that any transactions settle by December 31 to offset capital gains. Trigger capital gains before the end of the year if the gain won't increase your tax bill. (For example, if the gain can be offset against capital losses in previous years.) Defer capital gains by waiting until next year to take a profit on an asset if it will provide a future tax advantage. If triggering capital losses, you must be careful to avoid the "Superficial Loss Rules", which can be explained by your financial planner.
- Make RRSP decisions now. Turning age 69 this year? Then you're required to wind up your RRSP before December 31st. You have one last chance to make a contribution to your plan, but you must roll it over at the end of the year. Do nothing and the cash value of your RRSP will likely be taxed at the highest marginal rate. Avoid this huge tax hit by choosing from such popular roll-over options as a Registered Retirement Income Fund (RRIF) or annuity. If you have a younger spouse, you can make tax-deductible contributions to a spousal RRSP until your spouse reaches age 69. If you do not have a younger spouse, and will generate additional RRSP contribution room for 2004, you may wish to consider making an "over-contribution" (i.e., an RRSP contribution for 2004 that is made before the end of 2003). The penalty for this over-contribution will be more than offset by the tax savings.
- Make your move now … or later. You pay provincial tax based on where you reside on December 31. Move before year end if you're heading to province with a lower tax rate; try to delay your move until the New Year if your destination is a province with higher income taxes.
- Make the costs of self-employment pay. Self-employed persons can claim a capital cost allowance (CCA) on depreciable assets. Usually, only half of the CCA is permitted in the year of acquisition - so buying assets before December 31 will speed up your write-offs.
- Make an educated investment. You are allowed to contribute (combined with contributions by all other persons) up to $4,000 each year to a Registered Education Savings Plan for each child's future post secondary education. Your RESP contribution must be made by December 31 and, if you miss it, you're not allowed to carry forward that contribution room to a future year. RESP contributions aren't tax deductible, but that money grows tax-deferred until needed to pay for university or college. Also, contributions qualify for a matching federal grant up to certain limits.*
There are many other tax savings strategies you can benefit from. Call your financial advisor before year-end to take full advantage of every tax break available to you.
*Grants administered by Human Resource Development Canada.
This column, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact Eduard Pohlmann .
