BMO Nesbitt Burns Brings Clarity to Tax-Planning: December is Crucial Time to Lower Your Tax Bill
TORONTO - Although tax planning is a year-round process, Canadians should take action now to ensure they meet applicable year-end tax deadlines and take advantage of tax breaks, according to John Waters, tax expert with BMO Nesbitt Burns.
Waters says waiting until April to start thinking about taxes is too late because many of the cut-off dates that impact tax savings fall prior to the calendar year-end. “Now is the time to act before the filing deadline so you can save on 2009 taxes,” says Waters.
Waters suggests Canadians consider the following tax saving strategies that have looming deadlines:
Tax instalments – Deadline: December 15
Some Canadians (for example, the self-employed) may be required to pay 2009 income tax instalments if their estimated income tax payable for the year or their income tax payable for either of the two preceding years exceeds $3,000 (or $1,800 for Quebec residents).
Personal Tax instalments are due four times a year, with the final instalment due December 15. Canadians could incur non-deductible interest if they fall short on any of their instalments, so now is a good time to revisit the instalments made to date to determine if a top-up is required.
Tax-loss selling – Deadline: December 24
Investors can sell investments which have depreciated in value so that the capital losses can be used to offset any realized gains. Typically, they’ll review their capital gains and losses near the end of the year and then consider selling certain securities for losses to reduce their overall tax bill.
To be effective for tax purposes in the current year, tax-loss selling transactions must settle before the last business day of the year. Since settlement can take up to three days, BMO Nesbitt Burns is advising clients to do this by December 24th for securities trading on Canadian stock exchanges.
Prescribed Rate Loans – Deadline: December 31
Many Canadians are taking advantage of the low prescribed interest rates to implement an income-splitting strategy involving investment loans to family members. The all-time low rate of 1 per cent is in effect for loans made by December 31, 2009; for subsequent loans, the CRA’s prescribed rate at the time of the loan will apply.
Donations – Deadline: December 31
Another way to offset capital gains is to donate appreciated qualifying publicly-traded securities to charity. This will produce a tax receipt equal to the fair market value of the investment donated, while at the same time potentially eliminating any capital gains tax otherwise payable on the donated security. Donations must be made before December 31st in order to receive a tax receipt for 2009.
December 31st is also the final payment date for a 2009 tax deduction or credit for expenses such as childcare, medical, tuition and alimony payments.
Contribute to an RDSP– Deadline: December 31
The Registered Disability Savings Plan (RDSP) is available for all persons eligible for the Disability Tax Credit and resident in Canada. It allows families of Canadians with disabilities to set aside and invest money for their continued support. These investments can grow tax-free until needed. Under certain conditions, the federal government will contribute up to $70,000 in grants or bonds.
Dividend Income – Tax Rates changing after December 31
Beginning in 2010, the effective tax rate on eligible dividends is increasing. In light of these changes, investors should review their portfolios to consider whether any changes to their investment mix are warranted.
Home Renovation Tax Credit – Deadline: January 31, 2010
Many Canadians have already undergone renovations to their homes to take advantage of the new Home Renovation Tax Credit (HRTC). However, the HRTC is a temporary stimulus as it is only applicable for the 2009 taxation year, although homeowners have until January 31, 2010 to incur eligible renovation expenses to apply on their 2009 tax returns.
In addition to the tax saving strategies outlined above, Waters can also discuss:
* Tax planning and savings tips: simple things almost everyone can do to improve their tax situation.
* Possible tax savings strategies for seniors, including optimizing the use of pension income splitting and the $2,000 pension credit, in light of concerns over the OAS clawback.
* The potential benefits of the new Tax-Free Savings Account (TFSA) which became available in January 2009, in light of the recent guidance issued by the government which addresses concerns over certain uses of the TFSA.
* The importance of planning, not just filing your taxes. Why entrepreneurs in particular need to look at the big picture, including taking into consideration their personal, business and family situations.
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