I've listened to both parents my entire life complain about how "the older you get, the faster time flies." I remember thinking how odd that concept was. How could their life doing 'boring' parent things move any faster than the life of a teenager consumed with skateboarding, msn, ice cream, friends, sports, and video games. The past several years however, I think I'm slowly (or more like quickly) beginning to understand what they meant. With that said, it's already December! I'm sure I'm not the only one asking "where has the year gone?"
With the welcomed chaos of the holiday season upon us, I figured I'd use this weeks post as an opportunity to remind individuals of some basic year end tax tips, in the off chance you're someone who can benefit from a little reminder with everything else going on in your life.
If you're expecting to have a larger than usual capital gain; maybe you sold an investment property, cabin, or vacation home. Or maybe you just have big investment returns and would like to reap the rewards without triggering tax. By selling off investments that are down in value (taxable accounts only), you're able to trigger what's called a capital loss.
Capital losses can be used to offset any capital gains for the year. Capital losses can also be carried back three years (2016, 2017, and 2018) or carried forward indefinitely. Which means that if you had any previous capital gains you paid tax on, don't forget your losses can help you recoup some of your money from the tax you paid in the previous three years. In addition, if you're expecting a large gain next year and are looking for an added reason to part ways with a real loser, you'll be able to offset future gains, keeping more in your pocket.
If you are planning to buyback the security that was sold, you must be aware of the Superficial Losses rule, which requires you to wait a total of 30 days before you can repurchase the shares back (the 31st day is the first day you can repurchase the shares). This extends to family members or accounts directly associated to you (corporations or trusts). If you or a family member purchased the security back before the 31st day, the capital loss claimed is no longer deductible.
If through previous tax loss selling, you have capital losses that were never used, triggering a capital gain can be an excellent way to generate cash without incurring tax. By using capital losses from previous years, you're able to sell an investment that has gone up in value. One of the reasons for this could be to lock in gains on one of your big winners and shift proceeds elsewhere.
Another scenario where we see this used is when a client wants to raise the adjusted cost base(ACB) of an investment they own and want to continue to own it. It's an opportunity to reduce the amount of tax down the road. When you purchase the security backor re-invest the proceeds elsewhere, your new or old investment will have a higher ACB, which means less tax later when you end up selling the investment (Capital gain = market price = ACB). In either strategy, the capital losses are able to offset the capital gains, reducing or deferring taxes that will need to be paid.
If you're thinking you may need cash from your TFSA account, it's a good practice to get the money out before January 1st, 2020. The reason for this is due to the fact that any money transferred out of your TFSA can be recontributed, but not until the following year. By taking the money out before 2019 year-end, you're able to recontribute it anytime in 2020. Taking money out in 2020 forces you to hold off on recontributing the amount until 2021.
Wait until 2020 before accessing the RRSP Home Buyers Plan or Lifelong Learning Plan Both the Home Buyers Plan and the Lifelong Learning Plan allow RRSP holders to withdraw money out without having to pay tax at the time. The catch is, with either plan there is a requirement to recontribute the money back into the RRSP over a certain period of time, in certain installments. Failure to make the required payments back into the RRSP, results in those required payments being included as taxable income for that year. The benefit of waiting until the new year to access the Home Buyer Plan is that the repayment period doesn't start until the second calendar year after you make the withdrawal (for the lifelong learning plan it's longer). In either case, waiting one month to access the money in January 2020 versus December 2019, means a whole additional year before repayments are required.
You may want to contemplate holding off from any purchases of mutual funds in the month of December. With many funds, there is a chance that they might pay a taxable distribution. If you have significant purchases that will be occurring in a taxable account, this could cause a large unexpected tax bill. Waiting until the new year can prevent this from happening.
If you turned 71 in 2019, you should be aware that December 31stis your last opportunity to contribute to your RRSP before you're forced to convert it to a RRIF (which does not allow contributions). If you're looking to reduce your tax bill or have unused room you'd like to take advantage of, this is the last chance for you to contribute and get a tax deduction.
Have a child approaching 15 with no RESP? No one likes missing out on free money. However, if you have a child that turned 15 this year, 2019 could be your last chance to still have access to the Canada Education Savings Grant (CESG). This is a grant the government will provide you in addition to your contributions, essentially it's free money from government. If you have a child who has never been a beneficiary to a RESP, the year they turn 15 is the last chance to keep the CESG accessible for this child. In order to do this, $2000 must be contributed into RESP by year end. You're not only contributing to get the government grant for this year, but more importantly, to maintain the ability receive the grant in future years (2020 and 2021).
If you're like any of us at Endeavour you're likely a person who feels privileged to have had the opportunities your life has provided, and what better time to reflect on this than the holiday season? Giving back to charities is a great way to make an impact on the causes and communities close to you. If you're planning a gift for 2019, especially a significant gift, take a look to your taxable investment accounts for any major gains.
By donating shares, you can receive a tax deduction equal to the fair market value of the gift, a gift that can continue to increase in value. The gift to you is no capital gains in any way on the shares that were donated. If giving is something you've already planned to do, giving shares that have increased in value provides more bang for your buck than just giving cash.
- Brandt Butt, Investment Advisor
Brandt Butt is an Investment Advisor at Endeavour Wealth Management with Industrial Alliance Securities Inc, an award-winning office as recognized by the Carson Group. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.
This information has been prepared by Brandt Butt who is an Investment Advisor for Industrial Alliance Securities Inc. (iA Securities) and does not necessarily reflect the opinion of iA Securities. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.
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