OTTAWA — Holiday errands may be piling up, and adding one more thing to the list of chores for Canadians this month might seem unappetizing.
But a talk with a financial planner before the end of the year may help investors minimize what they owe the Canada Revenue Agency come tax time.
While you have the first two months of next year to make RRSP contributions for the 2015 tax year, almost everything else needs to be on the books by the end of the calendar year.
Peter Bowen, vice-president of tax and retirement research and solutions at Fidelity Investments, says it’s a good time to be thinking about making a charitable donation, which must be done by the end of the year to be included when you file your tax return.
“It is a great way to maximize tax savings if someone has the ability to give,” he said.
Bowen suggested donating stock instead of cash if you have shares that have a large gain, because not only will you get the credit for your donation, but you won’t have to pay any tax on the capital gains.
And even though RRSP contributions can wait, you can’t delay topping up accounts like Registered Education Savings Plans to receive the maximum available government grant for this year.
Unused tax-free savings account contribution room will carry forward, but Bowen says if you’re looking to use money in your account for a purchase early next year, you might want to consider taking it out before the end of December.
That’s because while TFSA withdrawals can be put back into your tax-sheltered account, you need to wait until the following year to do it. So, if you take out the money in December and find yourself with a windfall in 2016, you won’t have to wait until 2017 to top your TFSA back up.
“People think of them just as a savings account, that they can pull money out and put it back in, not realizing that there is that one-year lag — that’s probably the biggest mistake we’ve seen people doing,” Bowen said.
Tax consequences shouldn’t be the primary factor in making investment decisions, but tax-loss selling may also be something to consider if you’ve had a stock post a large loss which could offset any capital gains you’ve made.
Jamie Golombek, managing director for tax and estate planning at CIBC Wealth Advisory Services, says the market is down this year and investors may have some losses depending on when they made their investments.
However, he noted the loonie has also dropped significantly against the U.S. dollar, so investors should pay careful attention if they’re fretting about any losses on American investments.
“In some cases what might look like a capital loss on paper, because it has gone down in value from a U.S. perspective, could actually be a capital gain because of the foreign currency,” Golombek said.
Losses can also be used to offset capital gains going back three years, or carried forward to offset gains in the future.
For a loss to count for the year, the trade has to settle by the end of the year. That means this year, Dec. 24 is the last day investors can sell shares due to the Christmas and Boxing Day statutory holidays.
Golombek said now’s the time to have a conversation with your adviser, because if you wait until you’re filling out your tax return, it is too late.
“Any real strategic things that are going to save you some money — you have to do it before the end of 2015,” he said.