What? Year end already? We may have a few months of 2012 left, but aren’t November & December busy enough without having to worry about your taxes? I’d like to pass along a few tax tips now while there is still time to thoughtfully act on them instead of scrambling at the last minute.
Look at your investment portfolio held outside your RRSP/TFSA
Do you have any “loser” investments sitting there that you’re ready to get rid of? Talk to your investment advisor about whether selling would be a good decision from an investment perspective. If it’s a good decision to sell, you’re better off selling now rather than in January.
Why? Capital losses can be applied against capital gains. If you have capital gains outside your registered accounts, then you may end up paying tax on those gains. However, if you have losses in your portfolio that you wanted to realize anyway, doing so this year makes it easier to apply the gains right away.
If you wait until next year, you can still use the loss. Capital losses can be carried back 3 years or forward indefinitely. So, if you have a loss in 2013, you can apply it against your gains from 2012. However, you have to wait until you file your 2013 return and you need to fill in a separate form (T1A) to make the request.
The end of the year is a popular time to make charitable donations for good reason.
Why? If you make your donation by December 31, you can claim it on your 2012 return and get the related refund (or reduction of taxes owing) within a few months. Depending on what Province or Territory that you live in, your total tax credit (Federal & Provincial combined) for charitable donations could range from 19% to 35% on the first $200 and 40-53% on the amount over $200.
If you wait until January, you have to wait until April 2014 to see the effect of the donation on your tax return.
Donations are limited to 75% of net income, except donations of capital property, which are limited to 100% of net income. If you are considering donating capital property, get professional advice in order to take advantage of additional tax benefits.
Donations can be carried forward 5 years. So, if you find a receipt next year that you forgot to claim, you can either file an adjustment or just claim it in the future year.
Grouping medical expenses together generally results in a higher tax credit. In 2012, you can claim medical expenses for any 12 month period ending in 2012. It doesn’t have to be January 1 to December 31. So, if you’re getting braces for your child and laser eye surgery for yourself, get them in the same 12 month period if you can and choose that 12 month period for your tax credit. It’s a lot to pay at once, but at least your tax credit will be larger.
Why? Only medical expenses in excess of 3% of your net income (or $2,109, whichever is smaller) are eligible for a credit. If you have a small amount of medical expenses each year, then you may never be able to claim any of them. However, if you have nothing for several years, and then a year with a large number, then you might at least be able to get a tax credit. Obviously, you can’t always choose when medical expenses arise, but for those that you can plan, might as well do so advantageously.
If you wait, you may be able to claim some 2012 medical expenses on your 2013 return by choosing a 12 month period ending in 2013 that includes the dates of the 2012 expenses.
You may claim medical expenses for yourself, your spouse, and dependent children under 18. Medical expenses for older dependent children and other dependents are more restricted. Details for those calculations are on CRA’s website here.
If you are running a business and are planning on purchasing equipment, getting maintenance done on that equipment, or spending money on other things, try to do so before your fiscal year end date. A year end spending spree for spending’s sake does not make sense. Never spend money to save taxes because you’re still out the money. However, if you’re planning on making the purchases anyway, just do so before December 31 (or your business year end) instead of afterwards.
Why? Doing so will give you an immediate tax benefit instead of having to wait for a year. In the case of equipment, the tax rules usually call for ½ year capital cost allowance (tax talk for depreciation) in the year of acquisition. So, even if you have only owned the asset and made it available for use for 1 day during the year, you get to claim ½ year capital cost allowance. If you wait until the New Year to purchase the asset, you could end up claiming ½ year capital cost allowance when you’ve been using the asset for 364 days.
I saved this one for last because it doesn’t happen too often, but if you are moving to a different province, and you’re setting your closing date, keep in mind that your provincial taxes are based on your province of residence as of December 31st. It doesn’t matter where you lived for the rest of the year. So, if you’re moving to a lower-tax province or territory, you may want to close on your purchase in December. If you’re moving to a higher-tax province, perhaps waiting until January would be better. Never try to fake your province of residence. They do check on it. You really have to move. The lowest-tax province for you will depend on your income level. The easiest way to figure this out is to run your numbers through a tax calculator, like this one.
It pays to plan ahead. As the busyness of the last few months of the year is starting to ramp up, spending a few minutes doing what you can to minimize your taxes before the year is over can really help lower your bill in April.