As the end of the year quickly approaches, like me you are probably looking forward to enjoying the upcoming festive season. However, along with your last-minute shopping, here are some time-sensitive tips that will need action before the end of the year.

Capital Gains/Losses. A capital gain or loss is the difference between the purchase price and the sale price of an investment. If you sell the investment for more than what you bought it for, it is considered a capital gain, if the value is less than what you bought it for it is a capital loss.

A popular strategy at this time of year is to sell investments that have dropped in value and trigger capital losses.  Capital losses can be used to offset capital gains.  Any capital gains realized this year can be reduced or eliminated, thereby reducing payable taxes.  If the capital losses triggered exceed this year’s capital gains, the excess amount can be taken back three years and used to reduce any capital gains realized in those years.  As an alternative, the capital losses can be carried forward to reduce capital gains in the future.

This year however, the equity markets have performed quite well, putting many investors in a positive position. If you sell an investment and end up with a resulting capital gain, (you made money), you must pay taxes on that capital gain. Currently you include half (50%) of the gain in your income and pay tax at your marginal tax rate. This year may be a good year to realize the capital gains in your non-registered investment portfolio. Why? Because of the uncertainty around whether the government will increase the capital gains inclusion rate to 75%. The Liberals have not indicated any plans to change the capital gains rules, however, the NDP campaigned to raise the inclusion rate from 50% to 75%, leading many to speculate that the Liberals could adopt the policy to secure NDP support in Parliament.

Deductions. It’s also time to pay certain expenses to ensure you get the deduction for the 2021 tax year. These include investment related expenses such as interest on money borrowed to invest, or investment counselling fees that are deductible for non-registered account.

RRSP-RRIF. If you turned 71 in 2021, this is the last year to make an RRSP contribution before converting the account to a RIFF or annuity.

Income Deferral. If you are expecting a year-end bonus, your employer may agree to postpone the actual payment of the bonus to 2022.  This means that the bonus income will be taxed in the 2022 tax year.  However, by lowering the income in 2021, the amount of RRSP/DPSP/Registered Pension contribution room may also be lowered for 2022.

RESP. To receive the Canada Education Savings Grant (CESG) for 2021, contributions must be made to the plan by December 31, 2021.

TFSA. One of the advantages of the TFSA is that when withdrawals are made from the account, the ongoing contribution room will be increased by the amount of the withdrawal.  It is very important to note, however, that the increased contribution room does not come into effect until January 1 of the following year.  If you have therefore made withdrawals in 2021 and want to take advantage of the increased contribution room, you should wait until 2022 or you may face over-contribution penalties.

These tips highlight just a few of the ways you can act now to benefit from tax savings when you file your return.  However, keep in mind tax planning should be a year-round affair.  Please don’t hesitate to contact me if you have any questions on these tax saving strategies.

Have a Great Week!

Tracey

Source:  , Jamie Golombek, Managing Director, Tax & Estate Planning CIBC Private Wealth, Doug Carrol VP Tax and Estate planning, Invesco, Dynamic Funds

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