Make a list, check it twice - and get all the tax breaks
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
- 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
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 .