As an individual, the year-end means it’s time to estimate your income to take advantage of any deductions that may be available to you with the view of reducing your taxable income and/or taxes payable.
Examples would be moving expenses, child care expenses, safety deposit box fees, charitable donations, political contributions, medical expenses, any eligible employment expenses, union dues, carrying charges on investments, public transit and children’s fitness and arts amounts.
If you have investments, you need to keep track of the purchases and sales of your investments as well as the return of capital amounts on any of the income trusts that you may have sold during the year as this will affect the adjusted cost base of your investment.
Also, if you had any investments during the year that were sold which resulted in a Capital Gain, you may want to sell some investments that will trigger a Capital Loss to offset the earlier capital gain.
The reverse could also be true in some situations—you could repurchase those same shares after 60 days to avoid the stop loss rules.
Please note that investment income that is interest income is taxed at a higher personal rate than dividend income which has the benefit of the dividend tax credit.
You may want to consider moving some of those interest-bearing investments over to dividends.
Subject to some limitations, the interest on loans taken out for investment purposes may be deductible.
Another option may be to move some funds over to a TFSA as long as you are within the allowable limit of $5,000 per year. The contribution limit for 2013 will be $5,500.
The end of the year is the perfect time to make a charitable contribution because not only are you getting a tax break, but you are able to help the less fortunate.
However, this is also the time that many charitable scams are created, so to protect yourself make sure that the charity is a valid charity and that they print their charitable donation number on their receipts. You can check a charity’s status on the Canada Revenue Agency website under Charities Listings.
The rules of what you can donate to a registered charity have changed so that you can donate something other than cash.
If you rent out part of your home, you would want to collect your household expenses that pertain to the maintenance of that rental suite as those expenses can be written off against the rental income.
There is a form of income splitting available to seniors who receive the Canada Pension Plan that is based on the time spent living together and the length of time that you have contributed to the plan. Seniors can apply to share each other’s Canada Pension.
There is also pension splitting available within the tax return that relates to pensions received other than the OAS and CPP. The accountant will calculate the most beneficial pension split for the couple based on other factors of the joint income tax return.
RRSP deductions are based on 18 per cent of your earned income of the previous year. The rule of thumb is that about $10,000 in an RRSP contribution will save you $1,000 in taxes, so with a little planning you can calculate how much of an RRSP deduction you may need to offset your taxes payable.
The CRA calculates the maximum amount of RRSP that you can deduct in the following year and publishes this amount on your notice of assessment.
For small businesses:
If you own a small business that has payroll which you look after yourself, it’s possible to reconcile your payroll records up to this point so that the creation of the T4s will be easier and you will avoid any penalties and interest when you file your T4s in February.
As well, the end of the year is always a good time to purchase assets for your company to receive the benefit of a half year’s worth of depreciation/capital cost allowance on your tax return.
Conversely, if you sold an asset and have capital gains, a portion of those capital gains may be deferred to a future year if the proceeds are not all receivable in the current year.
If you use your home as your principle place of business and you regularly meet clients at your home, you can write off a portion of your household expenses against your income, so you would want to begin to organize and collect your household items.
Gabriele Banka is a Certified General Accountant and owns Banka & Company.