There are several items that you may want to review before the end of the year. Don’t miss opportunities to improve your tax position for 2014.
1) Triggering Capital Gains and Losses on your Investments
If you have open (non-registered) investments, have you taken advantage of opportunities to create tax losses or to trigger capital gains to offset losses carried forward from previous years? Check your 2013 income tax return and the Notice of Assessment issued by Canada Revenue. The deadline for submitting investment instructions to trigger any capital gains and/or losses is December 18, 2014.
2) Charitable Donations
Whereas contributions to your RRSP for deduction in 2014 can be made 60 days after the end of the year, this is not the case for charitable donations. If you want to deduct your charitable donations on your 2014 tax return, the donations must be received by the registered charity no later than December 31, 2014.
If you are claiming charitable donations for the first time, there is a “first-time donor’s super credit” which entitles you to receive an additional 25% credit on your first $1,000 of donations.
3) Withdrawals from Tax-Free Savings Accounts
If you anticipate making a withdrawal from your TFSA in early 2015, you may want to make that redemption at the end of this year instead, so that your contribution room is reinstated for 2015.
Initially, when Tax-Free Savings was introduced in 2009, the contribution limit was set at $5,000 per year. In 2013 it was increased to $5,500. The contribution room is cumulative. If you have maximized your TFSA contributions to date, you will have deposited $31,000 into this type of plan.
You can own more than one TFSA, as long as the total contributed does not exceed the maximum. As of January 1, 2015, you will receive an additional entitlement of $5,500, and when you file your tax return, Canada Revenue will report the tally of your contributions and withdrawals, so that you will know the status of your TFSA contribution limit. We are discovering many interesting uses for the TFSA when building financial strategies.
4) Salary versus Dividends
For business owners there is the usual question at the end of the calendar year – “Should my draws from the company be treated as salary or dividends?” For small business owners, in spite of the intention of the federal government to harmonize the tax treatment on salary and dividends paid out to shareholders, (ie. to neutralize any difference in the net impact), changes in the tax regulations now give salaries the slight edge over dividends in several provinces. These provinces include BC, Alberta, Manitoba, and Quebec. Depending on your circumstances, there are other considerations as well in determining salary vs. dividends. Talk to your tax advisor for more information.
There are a number of significant changes being made by the federal government that will prompt a review of the tax efficiency of your financial strategies. Most noteworthy are changes related to life insurance, prescribed annuities, and testamentary trusts – all three of which are important tools for managing your wealth. I will be posting a detailed discussion of these changes in subsequent blogs over the next few weeks. Please check in periodically to look for these updates.