2011 Year End Tax Strategies - 10 Points to Ponder

  1. Registered Education Savings Plans 
    The calendar year in which a child turns 17 is the last year that contributions will attract government grants – so ensure that you make the maximum contribution as your child gets older. And in order to qualify for grants a 16 or 17 year old must have a pre-existing RESP with either $2000 having been contributed to a plan (and not withdrawn) for the child before the year they turn 16 or there must have been 4 annual contributions of at least $100 per year (and not withdrawn) before the year they turn 16.
  2. Registered Retirement Savings Plans 
    If you are turning 71 this year it is your last chance to contribute to your own RRSP before turning it into a Registered Retirement Income Fund. If you do spousal contributions remember that when the funds are withdrawn they are attributed back to the spouse when withdrawn the calendar year they are deposited and the following three years – so if you are close to retirement it makes sense to make the spousal contribution before December 31st.
  3. Timing purchases and redemptions of mutual funds
    It is time to examine whether you have capital losses or capital gains from previous years – it may be a good time to sell funds that have losses or gains to take advantage of the carry forwards. Be wary of buying funds in open accounts that may be subject to year end distributions – one of the best ways to do so is by purchasing corporate class mutual funds that tend to avoid year end distributions.
  4. Timing of GIC purchases 
    If you are considering a GIC purchase remember that you must pay taxes on the interest annually – and it accrues from the date of purchase. Thus by waiting until January 2 you can defer paying tax on that accrued interest for an entire year. 
  5. Charitable donations 
    Charitable donations must be made by December 31 to qualify for a tax deduction this year. And you might consider doubling up your donations so that your donations exceed $200 – total donations above that level attract almost twice as much tax refunds.
  6. Business assets 
    If you operate a business purchase fixed assets before December 31st to ensure that you can start the depreciation expense on the items this year.
  7. Tax-Free Savings Account Withdrawals 
    If you are contemplating a withdrawal from your TFSA and intend on putting the money back in remember that you cannot recontribute the funds before the year following the withdrawal – so if you anticipate needing the funds for only a short period of time consider making the withdrawal before December 31st, so you can reinvest the funds in 2012.
  8. Create pension income if 65 or older 
    RRIF withdrawals by someone age 65 or older qualify for the pension tax credit – the first $2000 of qualified pension income is tax free – and qualified pension income can be split with a spouse. So if you are not receiving qualified pension income (and CPP and OAS do not qualify), for most people, making a RRIF withdrawal before December 31st (even if you have to move some RRSP assets to a RRIF to make it happen) can be an effective strategy.
  9. Home Buyers Plan RRSP withdrawals 
    Withdrawals of funds from an RRSP that qualify under the Home Buyers’ Plan are repayable two tax years after the withdrawal – thus if you make the withdrawal the first week of January you have effectively deferred the required repayment by a year.
  10. Timing of Medical Expenses 
    Medical expenses are deductible for any twelve month period that end in the taxation year. Medical expenses that exceed 3% of your income or $2052 (whichever is less) can be claimed – so if you are at this threshold consider whether there are expenses that can accumulated to ensure that you do get some tax relief. So there are two things to look at – picking the right 12 month period and seeing if there are expenses that can be made now to ensure that you can take advantage of the minimum expense threshold.

©2012 Investment Planning Counsel ~ Last updated: Nov 10, 2011 at 3:54 PM ~ Privacy ~ Legal ~ Accessibility

Disclaimer: The information contained herein is for ON residents only and does not constitute an offer to sell or solicit sales in any other Canadian or foreign jurisdictions.