Year-end Tax Planning: What to Remember and When to do it

Year-end Tax Planning: What to Remember and When to do itWhen filing your tax returns, have you ever found yourself asking, “Why do I owe this year? I didn’t owe last year,” or “why is my refund so low this year?” You may have come to the realization that there were avenues available to you to help you achieve your desired refund or reduce a balance owing; however, those were only available to you before the filing deadline. It is not too late to consider some of the items listed below to create a positive impact on your 2018 tax return.

What are Instalments and Why Should I Pay Them?
Due Date: December 17, 2018

You will be required to make instalment payments if your net tax owing in 2018 will be above $1,800 if your province of residence is Quebec and $3,000 if your province of residence is any other province other than Quebec. If you have not made all your required instalment payments for 2018, you can make a lump sum payment prior to December 17, 2018 to reduce some of the interest that may accrue and may be assessed later.

You do not have to pay instalments if your 2018 net tax owing will be less than your threshold listed above, even if you received a reminder to pay your instalments in 2018. Please note if you do not make the required instalment payment and your net tax owing exceeds your provinces threshold, you may incur interest. For more information on instalments, please refer to the Canada Revenue Agency’s website relating to instalments.

Capital Gains & Losses
Due Date: December 27, 2018

If you have disposed of investments in 2018 and you will realize a capital gain, you may want to consider tax-loss selling. However, do not let year-end tax planning override your investment decisions. Tax-loss selling means that you will sell securities from your portfolio that are in a loss position which you do not expect to recover, or you would like to sell and repurchase at a later date (you will need to be cognisant of the superficial loss rules which will be explained shortly). By selling these securities at a loss, you will be able to offset capital gains in the current tax year and you may carry back the losses in the prior three years and forward indefinitely.

A very important note to tax-loss selling is that you or a person affiliated to you cannot buy (or have the right to buy) the same or identical security during the period 30 days prior to the transaction and 30 days after the transaction. If this occurs, you will have a superficial loss and you cannot claim that loss in 2018.

If you engage in tax-loss selling, the date in which the transaction has occurred is on the settlement date and not the trade date. To that end, the last day of trading for Canadian and US securities is Thursday December 27, 2018 because it generally takes two business days for possession to transfer from seller to purchaser. We recommend that trades however occur prior to December 21, 2018 and that you confirm the settlement date with your broker.

Registered Retirement Savings Plan (RRSP) – Retirement
Due Date: December 31, 2018

In the year in which a person reaches the age of 71, the individual will only have until December 31, 2018 to make RRSP contributions and they cannot take advantage of the March 1, 2019 deadline to contribute to their RRSP. In addition, they must convert their RRSP to a Registered Retirement Income Fund (RRIF), purchase an annuity or collapse their RRSP by December 31.

Tax Free Savings Account (TFSA)
Due Date: December 31, 2018

The 2018 contribution limit for a TFSA is $5,500 (changing to $6,000 in 2019). If the room is not used, it will accumulate, which means that if you have not previously contributed to your TFSA, you will have additional unused contribution room. One particular item to note is that if you wish to make a withdrawal from your (TFSA), this should be done prior to December 31, 2018. Upon a withdrawal from a TFSA, the amount withdrawn is added to your contribution room in the year following the withdrawal. This means that amounts withdrawn in 2018 will be added in 2019; if you make a withdrawal in 2019, the amounts will not be added until 2020.

Additional Considerations
Due Date: December 31, 2018

Some additional items that an individual should consider prior to December 31, 2018 are making charitable donations, medical expenses, investment fees, political contributions, contributing to children’s Registered Educations Savings Plans (RESP) and Registered Disability Savings Plans (RDSP).

Interest on Loans
Due Date: January 30, 2019

Interest on loans to family members (prescribed rate loans) should be paid to avoid the income attribution rules should be paid in the year or within 30 days after December 31, 2018.

RRSP – Contributions
Due Date: March 1, 2019

The 2018 RRSP contribution limit is $26,230. You are able to contribute to your RRSP until March 1, 2019 to receive a deduction on your 2018 personal income tax return.

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The tax advisors at Welch LLP can help you better understand how to plan
for your 2018 year-end or help you plan for 2019.

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