Tax Strategies Canada
Make sure you have made at least $2,500 in registered education savings plan contributions per child during 2010, since that is the new amount that entitles you to receive the 20-per-cent CESG (Canada Education Savings Grant) on, up from $2,000 in previous years. The $4,000 yearly RESP contribution limit has been eliminated, and the lifetime limit has been increased from $42,000 to $50,000 per child. And a total of $7,200 is for fifetime grant limit beneficiary. This amount corresponds to 18 times $400 which used to be the maximum annual grant allowed per beneficiary.
The basic personal amount that a person can make without paying any federal income tax was supposed to be $9,600 for the previous year, but the recent Economic Statement increased that to $$10,320 for the year 2010. You should delay receiving income beyond that until next year, when other tax brackets will be indexed higher.
Avoid purchasing mutual funds in non-registered accounts late in the year because you will be taxed on year-end distributions that include gains received by investors before you bought your units. Remember when you go to file your tax return that you must pay capital gains tax not only on the amounts recorded on T3 or T5 slips as part of distributions, but also on capital gains realized from your personal sale of funds in non-registered accounts during the year. Also, postpone making non-registered investments until the New Year if possible.
Delay selling profitable stocks or mutual funds held outside registered retirement savings plans until the New Year, to defer paying capital gains tax until 2011. Conversely, consider selling stocks or mutual funds in non-registered accounts that have gone down in value on or before Dec. 24. That will trigger capital losses, which must first be used to offset capital gains realized in 2010, and excess losses can be carried back against capital gains during the previous three years, or carried forward indefinitely against future capital gains.
If you have stocks that have increased in value, consider donating them to a charity before year’s end.
Under new rules, by doing so you will not have to pay tax on the capital gains, and you will receive a donation receipt for the full amount of the value of the securities.
If you have turned or will turn 71 this year, you must convert your RRSP into a registered retirement income fund or a life annuity by Dec. 31. That’s a change from the previous age limit of 69. However, you may make a final tax-deductible contribution to your RRSP before conversion. And you can make a contribution to a spousal RRSP until the end of February 2011 if the spouse is younger than 71.
A sole proprietor or member of a partnership should make purchases of equipment or supplies before year end. The same holds for appliances or furniture needed for a rental property. The cost of major capital items may then start being depreciated in 2010, although only at half the yearly depreciation rate during the year of purchase.
A number of investment expenses are deductible and should be paid by Dec. 31. These include interest on loans to invest in a business or an income-producing investment outside an RRSP, plus investment counsel fees, the cost of renting a safety deposit box, and accounting fees to calculate rental or investment income.
Pay professional or union dues, alimony or maintenance payments (depending on your agreement date), and 2010 moving expenses, by year end.
Keep and file any 2010 receipts that might be arriving with Christmas mail, such as from sports programs that qualify for the child fitness tax credit, and also round up public transit receipts for passes of at least one week in duration.
If you will have excess tax deductions or non-refundable tax credits in 2011, fill out form T1213 early in the year to have withholding taxes reduced on your regular paycheques. This will allow you to keep more money in your pocket during the year, instead of waiting to get it back as a tax refund in early 2012.