Year End Tax Planning Checklist

By Evelyn Jacks, President

Knowledge Bureau

Need a little extra cash for Christmas? Want to start on a good financial footing in 2012?  Your family’s tax returns are a great place to start, because you may just find a lump of gold hiding in year end tax planning opportunities.  In a volatile investment environment, being tax astute can add double digits to your cash flow and investment portfolios.  Following are seven tax tips to discuss with your tax and financial advisors before year end:


  1. Recover taxes owing your clients from prior years. It is everyone’s legal right to arrange affairs within the framework of the law to pay the least income taxes possible–especially if cash flow is tight.  Lots of people put off filing their returns because they think they may owe money, but in fact, the tax department may owe them (Always nice when that happens!).  Tax refunds resulting from errors and omissions may be recovered over a ten year period; so if you’re a delinquent filer or you missed an important tax saving provision be sure to adjust your tax returns by December 31.  After this the 2001 tax return is statute-barred.  Remember, by filing a return you can also create unused RRSP contribution room, and capital loss carry forward or carry back opportunities.


  1. Don’t overpay your quarterly installments:  If you have a quarterly tax installment due on December 15, or in the case of farmers, December 31, and you haven’t yet paid it, be sure to calculate your estimated income the current tax year first.  If your income will be lower than in past years, you may be able to reduce that payment, or not make it at all.  To use the optional “current year” or “prior year” methods of calculating your installments, check out the CRA–Canada Revenue Agency’s publication P110 Paying Your Income Taxes by Installment.    This is also a nice way to create new capital for investment purposes, or, that much needed vacation!


  1. Compute your family RRSP Advantage:  Most Canadians do not maximize their opportunity to contribute to an RRSP—and that’s a shame.  It can truly save you a lot of money if you do, yet the time to plan to put the money aside is now.   To be most effective it should be made earlier rather than later according to your available RRSP room.


The RRSP deduction reduces net income — that line on the tax return upon which refundable and non-refundable tax credits are based.  A reduced net income increases those credits and therefore cash flow, leaving more money for investment opportunities.  Planning now to contribute to an RRSP for each family member who has RRSP Contribution Room (check last year’s Notice of Assessment for this figure) is smart:  it can affect family net income and increase tax credits and deductions that are transferrable.  The RRSP makes a great Christmas present too: and helps couples split retirement income later under a spousal plan.  Also, if cash flow is scarce, consider which assets held in non-registered accounts could be flipped into an RRSP. Talk to your tax and financial advisors about that to superficial loss rules.


  1. Consider tax loss selling activity.  Year end is a good time to consider selling portfolio losers to offset winners.  Capital losses generated by the sale or transfer of stocks and bonds in a non-registered portfolio before year-end will first offset other capital gains incurred this year.  Unused losses can be carried back to offset capital gains you reported in any of the previous three years — a great way to reach back and recover taxes previously paid.  Or, you can carry unused capital losses forward, indefinitely — an important way to manage taxes on your next winning investments.


  1. Split income and transfer assets.  The current low interest rate environment is opportune if you wish to borrow money to increase your portfolio or split income with family members.  In the former instance, interest on your investment loan will be tax deductible, provided your assets generate a reasonable expectation of income from property in the future, i.e., interest, dividends, rents or royalties.  (Note: capital appreciation is not considered income from property.)  For family income splitting purposes, draw up a bona fide loan with your lower earning spouse and charge the prescribed interest rate, to enable the reporting of investment income in that person’s hands.  The interest, however, must actually be paid to you by January 30 following each taxation year and you must, of course, report it on your tax return.


  1. The TFSA is a must. Give your adult children a valuable Christmas gift:  open a Tax Free Savings Account and make sure you and/or they maximize the opportunity to invest up to $5000 in it each year.  The earnings will be tax free and the opportunity to use this valuable savings room will build family millionaires—when you consider the annual opportunity.


  1. Donate Securities. Capital gains can be avoided entirely when qualifying securities with accrued gains are transferred to a family’s favorite charity before year end.  In addition, a receipt for the donation will offset  taxes payable.  That’s a win-win, and worth a portfolio review in the last three months of the year.


Other tax saving tips to consider and discuss before year end include how to:


  • Maximize medical expenses
  • Annualize tax on bonus payments
  • Buy that car or computer before year end to maximize CCA deductions
  • Finalize the auto log for 2011; then qualify for “ logging” only 3 months next year
  • Move before year end—if your new job or business is in a lower taxed province
  • Avoid Clawbacks on OAS and refundable tax credits with net income planning
  • Avoid promotional expense claim restrictions for rookie commission sales reps
  • Plan for early retirement with new CPP changes starting in 2012
  • Start receipt sorting early:  this year, be on time and be audit-proof


It’s Your Money.  Your Life.  A tax-wise investor becomes wealthier over the long run, no matter the current economic cycle.  Most people leave tax savings on the table.  Maximize your potential to reduce your after-tax income in the last quarter of this year!


Evelyn Jacks, a best-selling Canadian author of 48 books including the new Essential Tax Facts 2012 and the Founder and President of The Knowledge Bureau, a national educational institute focused on Real Wealth Management™.  Learn tax preparation and tax efficient retirement income planning:  see


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