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Jamie Golombek, managing director of tax and estate planning with CIBC Financial Planning and Advice.
Hard to believe, but the 2019 year-end is just around the corner, and here we are again with our annual tips on things to think about before the end of the year. Well, of course, where do we begin? We begin of course with tax-loss selling. If you’ve got securities or investments that have gone down and they’re sitting in an accrued loss before the end of the year, now might be a good time to consider selling those investments, realizing that loss and then using that loss against any other capital gains you had this year, carrying it back up to three calendar years to get back capital gains tax paid in those years, or carrying it forward indefinitely for future years.
Now, the important date to remember for 2019 is December the 27th. In other words, for your loss to be available for 2019 or even one of the prior years, the settlement has to take place in 2019. Therefore, we must use a December 27th deadline trade date to make sure that that trade settles by December 31st, taking into account the intervening weekend.
Don’t forget foreign exchange. If you have a U.S.-dollar share, be sure that you go back to the historical date of when you bought that share, compare the foreign exchange rate then versus the foreign exchange rate at which you’re selling or planning to sell or crystallize before year-end to make sure that what really looks like a loss isn’t actually a gain, because of the positive movement in the foreign exchange depending on the currency that you’re looking at. Always be mindful of that superficial loss rule again, that says if you buy back the security within 30 days, then that loss is denied and added to the ACB, the cost base of the shares. Now remember, not just you buy it back, but if your spouse buys it back, a corporation controlled by you buys it back or even a trust, such as an RRSP or a TFSA trust buys it back, the capital loss can be denied.
Other basic ideas that we remind people every year: if you’re going to take money out of the home buyers’ plan, lifelong learning plan, you might want to just wait until the beginning of January instead of taking it out in December. That’ll give you an extra, basically, year before you have to start paying back the withdrawals under those particular plans. TFSA withdrawals work the other way around. If you want to take money out of a TFSA, and you’re going to take it out in January, maybe take it out in December because that way, that amount that you take out from your TFSA can be recontributed beginning the following calendar year. So by taking money out of a TFSA in December, that gives you all of 2020 to recontribute the TFSA that you’ve just withdrawn should you have the cash to do so.
Certain expenses must be paid by the end of the year, where I’m thinking things like interest paid on money borrowed for investing. Investment counseling fees for non-registered accounts must be paid by December 31st to claim the tax deduction in 2019. If you have an RRSP or RRIF you’ve got to convert it by the time you are turned 71. December 31st is the final day to do it. You’ve got to make any RRSP contributions by that time. You don’t have until the normal March 1st deadline to do so.
Other things that you can consider before the end of the year: if, for example, you’ve got training costs that you’re paying for that are not covered by an employer, next year, 2020, is the first year that you’re entitled to claim the new refundable Canada training credit. So in other words, if you’re someone who’s between 25 and 65, have income between $10,000 and $147,000, then you’re starting to be able to claim $250 of matching eligible tuition fees, starting in 2020. That doesn’t apply this year, so again, to the extent that you can defer paying those costs until January 2020, you might be head of the game.
With RESP, the education savings plans, remember about the grants. If you have a beneficiary in the particular plan that turns 15 this year and never has been a beneficiary of an RESP, you’re not going to be able to claim a grant in any future years or catch up, unless you put in $2,000 to an RESP by the end of 2019. So again, because they’re making that RESP contribution by the end of the year, to not just get this year’s grant but create eligibility for 2020 and 2021.
If you have a family member with a disability, or a senior, don’t forget about the non-refundable home accessibility tax credit. That allows an individual that pays for renovations that allows them to be more mobile or functional within their home or reduce harm or risk within their home, they can claim a non-refundable 15% credit on up to $10,000 expenses per calendar year. So again, you might want to pay some expenses by December 31st for any work or goods acquired in 2019. Remember that credit could also, that amount could also qualify for the medical expense tax credit.
Charitable donations. Let’s end on a charitable note today. I often talk about tax-loss selling, but let’s not also forget about tax-gain donating. If you’re going to be giving to charity in 2019, especially if it’s going to be a significant gift, take a look at your portfolio and donate any shares or securities with an appreciated gain. Not only will you get a tax receipt equal to the fair market value of that gift, but you’ll pay no capital gains tax whatsoever on the value of the shares being donated in kind to a registered charity.
And my last point, as with every year, if you expect a change in your tax bracket between 2019 and 2020, and to the extent that you have a choice of realizing income one year versus the other, through such things as selling an investment with a capital gain or exercising employee stock options or deferring a bonus, you might want to take into account your tax rate in 2019 versus your tax rate in 2020 to determine whether there’s some planning opportunity to have that income taxed in a lower tax year.
For all this information and much more, please consult our newly updated year-end tax tips for 2019.