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
- Political contributions may be claimed for federal political
contributions and for some provincial party contributions supported by an
- 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 at 905-943-4046 if you need further assistance or accounting services in the coming months. Click here for additional contact information
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