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Year-end tax tips: Timing is critical for many moves

In the spirit of what can be an expensive season, we’ve gathered a number of expert tips that can result in big savings for Canadians when they next file their taxes. But be warned. Many of these moves have end-of-the-year deadlines.

Tax-loss selling and changes in rates can be opportunities, experts say

2015 was a bad year for many stocks on the TSX. But if those stocks were held outside a registered account, selling them for less than you paid for them could trigger a capital loss, which can be used to minimize taxes owing. Just sell your Canadian securities by Dec. 24 for them to be considered 2015 trades. (Darren Calabrese/Canadian Press)

With the end of the year looming, we tend to spend more time with family as the kids get a break from school, and many of us take seasonal holidays. Not coincidentally, it's also a time when we spend more of our cash.

So in the spirit of what can be an expensive season, we've gathered a number of expert tips that can result in big savings for Canadians when they next file their taxes.

But be warned. Many of these moves have end-of-the-year deadlines.

Tax-loss selling

2015 was not a kind year for many stock market investors. The TSX is poised to end the year below where it started as resource stocks have taken a pounding from lower commodity prices.

So if you own some of those losers and aren't optimistic about a rebound, you may want to dump them from your portfolio.

If those stocks are held outside a registered account -- in other words, not held in an RRSP, RRIF, TFSA or RESP -- selling them could trigger a capital loss. You can use that to offset any capital gains you may have earned this year or during the three previous years. Or you can carry forward those losses indefinitely.

Because it takes three business days for a trade to become final, you must sell Canadian securities by Dec. 24 for them to be considered 2015 trades. For U.S. securities, the deadline is Dec. 28.

But if you hope to sell the stock, claim your loss, and then immediately buy it again, suppress your desire to declare yourself brilliant. The CRA's superficial-loss rule prevents investors from claiming a capital loss if the same investment is reacquired within 30 calendar days.

Changing tax rates

The new Liberal government in Ottawa is tweaking income tax rates for the 2016 tax year.
Online tax software can automatically figure out your tax bill. But it's up to taxpayers to see if they're able to shift income to benefit from the coming changes in tax rates for the so-called middle class and top earners. (Ryan Remiorz/Canadian Press)

As of Jan. 1, 2016, the federal tax rate for the so-called middle-class tax bracket — between roughly $45,000 to $90,000 — will drop from 22 per cent to 20.5 per cent.

At the same time, the federal tax rate for people earning over $200,000 will jump by four percentage points to 33 per cent. Since provincial income taxes are tied to federal tax rates, the money saved (or extra tax paid) could be substantial.

So if you have any control over the timing of your income, shifting income could produce a payoff come tax time.

Moving to another province

If you're planning to move to another province, be aware that the CRA considers that your province of residence for tax purposes for the whole year will generally be the province where you live on Dec. 31.

"If you're moving to a higher-tax province, you may want to delay your move until the new year, if possible. If you're moving to a lower-tax province, you may want to take up residence there before Dec. 31," says a tax advisory from KPMG.

The money saved by adjusting your moving date by a few weeks could amount to thousands of dollars. For example, someone with a taxable income of $75,000 pays a total of $15,944 in federal and provincial tax in British Columbia. But if they were resident in Nova Scotia at the end of this year, they would pay $20,588 -- a difference of $4,644.

Curious about how much you could save (or lose) in an interprovincial move? You can check out your numbers here with Ernst & Young's interactive income tax calculator. 

TFSAs

The new Trudeau government has rolled back the $10,000 a year limit on tax-free savings account contributions that the Harper government had brought in earlier this year. But if you put in the maximum this year, you won't need to take any out. The $10,000 contribution limit for 2015 stands.

As of 2016, the annual limit will revert to $5,500. This means that those who have made no TFSA contributions and were at least 24 years of age in 2015 can contribute a total of $41,000 before the end of 2015 and $46,500 as of 2016.

The experts say if you are planning a TFSA withdrawal, consider doing it before the end of the year. If you wait until January, you won't be allowed to re-contribute that amount until 2017.

RRSPs/RRIFs

The usual RRSP contribution deadline for the 2015 tax year is Feb. 29, 2016. But not if you turned 71 in 2015. In that case, you must make your contribution by Dec. 31.

And if you turned 71 this year, you must also convert your RRSP to a registered retirement income fund (RRIF) or registered annuity by the end of the year.

Be aware, too, that the amount you must withdraw from a RRIF went down this year, thanks to changes announced in the federal budget.

From 2015 going forward, RRIF holders face lower minimum withdrawal requirements. (See the old and new RRIF withdrawal rates here). 

"If you withdrew more than the new minimum amount in 2015, you will be permitted to re-contribute any excess (up to the old minimum amount) until Feb. 29, 2016, and the amount re-contributed will be tax deductible in 2015," says Jamie Golombek, managing director of tax and estate planning at CIBC Wealth Advisory Services.

BDO Canada offers a tip about the RRSP home buyers' plan (HBP), which allows people to withdraw up to $25,000 tax-free from their RRSPs towards the purchase of their first home.

If you're planning on using the HBP towards year-end, consider deferring your withdrawal until after Dec. 31, says a tax advisory from the company. "This will extend your time period for purchasing your home and repaying the amounts withdrawn by one year."  

Home renovation expenses

The 2015 federal budget introduced a new home accessibility tax credit to help seniors, disabled Canadians and their families pay for certain home renovations. But it doesn't go into effect until 2016.

So those planning any eligible renos may want to wait until the new year.


The usual Dec. 31 payment deadlines:

  • Charitable donations (can also be carried forward for five years)
  • Medical expenses (if claiming on a calendar year basis)  
  • Union and professional membership dues
  • Investment counsel fees, interest and other investment expenses
  • Certain child and spousal support payments
  • Political contributions
  • Deductible legal fees
  • Interest on student loans
  • Payments for the children's fitness and arts tax credits

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