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Year-End Tax Planning

In Canada, there are a number of strategies that could be followed to reduce the tax burden by legitimate means. Some strategies are long-term and need to be put in place by a Canadian Chartered Accountant and followed over an extended period of time. However, here are some items that can be considered and implemented now, before the December 31 year-end is upon us:

  • Consider selling any stocks whose market value is below cost, if they do not have a reasonable chance of recovering their value in the foreseeable future. This would enable a capital loss to be deducted against other capital gains taken during the year, or retroactively against capital gains from prior years.
  • If you are considering charitable donations, better to do it in December rather than January or February, to get the significant tax credit that would result (usually 30-40% of the donations).
  • Medical expenses: if you expect to incur any significant medical expenses shortly, it's better to pay for these in December rather than January to get the tax credit this year. However, keep in mind that total medical expenses must exceed 3% of net income before they can be deducted.
  • Political contributions may be claimed for federal political contributions and for some provincial party contributions supported by an official receipt.
  • Significant tax credits for tuition fees can be claimed if paid in the current tax year, for a student enrolled in full or part-time studies at an educational institution.
  • Legal expenses are deductible when paid in the year to collect or establish a right to a retiring allowance, an award for wrongful dismissal, or a pension benefit. The legal expenses cannot exceed the benefit to which they relate.
  • RRSP contributions are deductible when made in the current year or up to 2 months after the year. The deductible amount is designated on the previous year's notice of assessment from the government. It is advantageous to contribute and deduct the full amount allowed, but is often not advantageous to borrow to contribute more than current cash flow allows, since interest on the loan is not deductible. It is important not to exceed the maximum allowable contribution, as there is a severe penalty for over-contributions unless the error is corrected shortly afterwards by withdrawing the over-contribution.

There are other strategies that can be implemented to reduce you tax burden. Please contact us if you need further assistance or accounting services in the coming tax season. Click here for our contact information

Year-End Tax Planning - Simkover and Associates Chartered Accountants

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