Year End Tax Tips
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Transcript of Year End Tax Tips
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Year End Tax Tips
Jamie Golombek, Managing Director, Tax and Estate PlanningCIBC Private Wealth Management
December 2009
#1 - Tax loss selling - transfers
Transfer to RRSP?
Loss denied
Crystallize first, wait 30 days to buy back
Transfer to TFSA?
Loss denied
Transfer to RESP?
OK, but if held for 30 days, “superficial loss”
#1 - Tax loss selling – “superficial loss”
Superficial loss- Buy “identical property” within 30 calendar days- Who?
You Spouse/partner Corporation controlled by you/spouse/partner Trust, if you or spouse is majority-interest beneficiary
Transfer to parent / child – OK
Switch funds (3rd party funds)- Corporate to trust version (vice versa)- Not identical properties
Two index funds? – CRA says “identical”
#1 - Tax loss selling – spousal transfer of losses
Spousal loss transfer
Victor + Maureen
- Maureen – ABC Shares - $10,000 accrued capital gain
- Victor – XYZ Shares
ACB - $50,000
FMV - $40,000
#1 - Tax loss selling – spousal transfer of losses
Step one – Victor sells XYZ shares for $40,000
- Capital loss of $10,000
Step two – Maureen buys XYZ shares, pays $40,000
- Victor’s $10,000 capital loss is now “superficial”
- Added to ACB of Maureen’s shares ($10,000 + $40,000 = $50,000)
Step three – Maureen waits 30 days, sells for $40,000
- ACB - $50,000
- FMV - $40,000
- Capital loss of $10,000 can be used against ABC accrued gain
#2 - Home ownership and prospective home ownership
Home Renovation Tax Credit
First-Time Home Buyers’ Tax Credit
Home Buyers’ Plan
#2 – Home Renovation Tax Credit (HRTC)
Expenditures over $1,000 Maximum of $10,000
Credit worth 15% of $9,000 = $1,350 Per family (spouse/partner, minor kids) From Jan 28, 2009 until Jan 31, 2010 Eligible expenses?
Labour, professional services Building materials Equipment rentals Permits
Ineligible? Routine maintenance Furniture, drapery, appliances Interest expense
#2 – Home Renovation Tax Credit (HRTC)
Air conditioners
Condo renos – specific/general
Docks
Driveways
Landscaping
Sauna
Solar panels
Swimming pools / hot tubs
Materials purchased before Feb 2010 qualify even if they are installed after January 2010
Labour only qualifies if work is done before February 2010, even if prepaid
#2 - First-Time Home Buyers’ Tax Credit
New $5,000 amount eligible for 15% credit Value = $750
“First-time home buyer” Neither individual nor spouse/partner owned home in current or previous
four calendar years
One claim per family Unused credit can be transferred to spouse/partner
#2 - Home Buyers’ Plan
$25,000 can now be withdrawn from an RRSP, tax-free
Must be paid back over 15 years to avoid annual income inclusion
“First-time home buyer” Neither individual nor spouse/partner owned home in current or previous
four calendar years
DEFER participation to January 2010 to delay repayment until 2012 (vs. 2011)
#3 – RRSP annuitants who turn 71 in 2009
Convert to RRIF (or annuity) by December 31
Final RRSP contribution must be made by December 31
No sixty day rule
Unless spousal RRSP with younger spouse/partner
#3 – RRSP annuitants who turn 71 in 2009
Consider one-time “over-contribution”
Client (71) has $100,000 of earned income in 2009
Will create $18,000 of RRSP contribution room for 2010
Contribute $18,000 to RRSP in December 2009
Pay penalty of 1% or $180 for month of December
Deduct contribution in 2010 (or future year) against ANY source of income
#4 – Contribute to an RESP
$50,000 per child
No annual maximum
Maximize Canada Education Savings Grants (CESGs)
20% on first $2,500/annually = $500
Catch-up CESGs back to 1998
• Max of $1,000 of CESGs per year
$7,200 per child maximum
Child turned 15 in 2009 with no RESP?
Contribute at least $2,000 to RESP in 2009 to get CESG for 2009 and make child eligible for 2010 and 2011 CESGs
#5 – Charitable donations
Must be made by December 31st
No capital gains tax on “in-kind” donations of publicly traded securities to charity
Consider “donor advised funds” through public foundation
#6 – Contribute to a Registered Disability Savings Plan
$200,000 lifetime limit
Age 59 and under to open
Age 49 and under to get government funds:
Canada Disability Savings Grants
• Family income < $77,664 (2009)
300% of first $500
200% of next $1,000
• Family income > $77,664
100% of first $1,000
• Lifetime max: $70,000
#6 - RDSPs (cont’d)
Canada Disability Savings Bonds
Family income < $21,816 (2009)
• $1,000 annually (no contributions required)
Family income > $21,816
• Reduced pro-rate until eliminated at income > $38,832 (2009)
Lifetime max: $20,000
#7 – Purchase business assets
Claim a half-year’s depreciation even if asset bought on December 31st
Accelerated tax depreciation for computer purchases
Can write off 100% of cost of computers in year acquired
No “half-year” rule
For purchases from January 28, 2009 through January 31, 2011
#8 – Spousal/Partner Loan at 1%
Spouse or partner gifts/transfers funds
- FULL attribution of income / gains to transferor
Exceptions:
Pay FMV or prescribed rate loan
Rate for Q4 2009 – 1%
Lowest ever!
Jack loans Diane $200,000 Investment earns 5% annually
Income splitting opportunity: $8,000Tax Savings (ONT): $8,000 X (46.41% - 21%) = $2,033 annually
Income $2,000
#8 – Spousal Loan at 1% (Example)
Jack $200,000
Interest Expense – 1%
Income $10,000Interest expense (2,000)Net income $ 8,000
Diane
#8 – Spousal Loan – Rate Reset?
What if you have an existing loan at 3% or 4%?
Can you adjust rate on loan?
Can you refinance with new loan?
#9 – Pay investment expenses by Dec. 31
Investment counseling fees (non-registered only)
Professional accounting services
Safety deposit box rental
Interest expense
#9 – Make Debt Tax-Deductible
“Singleton Shuffle”
$300,000 $300,000
$300,000 $300,000
BANK
#9 – Make Debt Tax-Deductible (cont’d)
Lipson decision – Supreme Court (January 2009) General Anti-Avoidance Rule (GAAR) Use of attribution rules
Source: http://www.scc-csc.gc.ca/Details/d4-eng.aspCredit: Philippe Landreville, PhotographerSupreme Court of Canada Collection
#10 – Plan NOT to Get a Refund!
the euphoria of getting a tax refund that lasts only until you realize it was your own money to begin with…
in·tax·i·fi·ca·tion (in-täk-sə-fə-kā-shən) noun
2009 Tip #10 – Plan NOT to Get a Refund! (cont’d)
“Undue hardship” provision
Too much tax withheld at source
Due to:
RRSP contributions
Support payments
Childcare expenses
Charitable donations
Form T1213
#10 – Avoiding Clawback of 2010 OAS
Apply for 2010 reduction of clawback at source – OAS
Form T1213 OAS
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