Before this year-end, it is a good time to do a little year-end tax planning, so it can pay you big financial dividends in the future. The following are some popular tax planning items that you should be aware of this year.
Moving to another province
The income tax rate in the province where you’re living as of Dec. 31 determines how much provincial tax you’ll pay for the whole year. So if you’re moving to a higher-tax province, such as moving from Ontario to Quebec, you may want to delay your move until the new year.
Withdrawing From Your TFSA
If you have set up a TFSA and you’re planning a withdrawal, consider doing so before the end of year rather than early next year. This is because the amounts withdrawn this year will create additional contribution room for next year.
Making payments and donations by Dec. 31
Most people know about the Dec. 31 deadline for charitable donations, but other payments also need to be made by the end of the year to get a tax deduction or credit for this year.These payments include medical expenses, childcare expense, spousal support payments, charities and donations, investment counsel fees, interest and other investment expenses.
Tax Loss Selling
Year-end is a good time to consider selling those poorly performing investment that have accrued losses (and aren’t likely to recover) in order to offset any capital gains realized current year. Any unused capital losses realized can either be carried back three years or forward indefinitely to offset capital gains in any of those years. In order to ensure that trades are settled prior to the end of the year, all trades should take place no later than December 24th.
Paying a Salary to Family Members
You can pay your child or spouse a reasonable salary based on their involvement in your business. The salary should be a reasonable amount considering the type of work performed and should be comparable to what a third party would be paid to perform the same type of service. If your child or spouse has no or low income, they will pay no or few tax for this salary.
Deferral of Income
If you can control when to receive your income, you can consider delaying the can consider delaying the final completion of work and billing until after December 31st. Any income received after the year-end will be taxed next year instead, providing a one year deferral of the tax liability.
Purchasing Capital Assets
If you’re self-employed and need to make a capital purchase such as a computer or furniture for your business, you should do it by Dec. 31.This is because it can provide your business with a deduction for Capital Cost Allowance (CCA). As long as the capital assets are available for use prior to December 31st, the business can claim the CCA deduction this year.
Year-end Tax planning have to be done earlier to be able to get the benefit next spring when you file your return and the biggest mistake is doing nothing.