When it comes to tax season, many people think of March or April.
But good tax planning should happen year-round – and there’s no time like January, says Jamie Golombek, managing director, Tax and Estate Planning with CIBC Wealth Advisory Services.
“When we file our returns, that’s backwards-looking,” he says, adding there are a few strategies that can be applied retroactively, such as sharing donations and choosing medical expense periods.
“But when it comes to 2017, there is so much you could be doing” during the year, Golombek points out. This includes:
- income splitting with family members or a family trust;
- maximizing RESPs for children and grandchildren;
- maximizing RDSPs for disabled family members in order to optimize government grants and government bonds; and
- choosing between TFSA or RRSP contributions, or deciding to pay down debt.
“These are all issues that can be talked about knowledgably throughout the year,” he says, “[and] what better time than the beginning of 2017 […] to set yourself up for an entire year of tax optimization.”
The new year brings with it two early deadlines.
“The first one is January 30,” says Golombek, noting, “that’s the deadline for paying interest on prescribed-rate loans.”
Such loans typically involve a higher-income family member loaning money to his or her lower-income spouse; then, the money is invested and any income is taxed at the spouse’s marginal rate. The prescribed interest rate for these loans has been 1% since April 2009 (except for Q4 2013), making them quite attractive for wealthy families.
If clients miss the interest payment deadline, “the [spousal loan] strategy not only falls apart for last year, 2016, but it actually falls apart for all future years. You have to sell the investments, pay off the loan, and do a brand-new prescribed-rate loan in 2017 for the strategy to work if you miss that 30-day deadline.”
Clients should also heed the RRSP deadline, which is March 1, 2017. Golombek offers this advice to taxpayers: “Be sure to sit down and look at your RRSP contribution limits, and look at that opportunity to be able to put money away for your retirement. Or, would you forgo that altogether and consider the TFSA? It all depends on your tax rate now versus your tax rate in retirement.”
This year is the last time clients can claim the First-Time Donor’s Super Credit, which was introduced in 2013.
“It allows an individual to claim an additional 25% federal credit if they are a first-time donor,” says Golombek. “That means neither the individual nor their spouse or partner has claimed a charitable donation for any year after 2007.”
Up to $1,000 in donations are eligible for the additional 25% First-Time Donor’s Super Credit. Plus, your client can share the claim for the credit with a spouse or common-law partner, but the total combined donations claimed cannot exceed $1,000.