The end of the year is always a good time to review your personal finances and take advantage of any tax-saving opportunities that may be available to you before the new year.
We’ve put together a list of common year-end tax planning considerations for individuals. If you would like help implementing these or other tax-saving measures before the end of the year, please don’t hesitate to contact us.
(Looking for our year-end tax tips for business owners? Click here.)
What’s new this year?
Personal income tax rates
- Federal rates on non-eligible dividends are increasing in 2018 and will further increase in 2019, causing combined federal and provincial/territorial non-eligible dividend rates to rise in both years.
- British Columbia: Rates on income over $150,000 are increasing from 14.7% to 16.8%, starting in 2018.
- British Columbia: Rates on eligible dividends are expected to decline after 2018, while rates on non-eligible dividends increased in 2017.
Year-end tax planning considerations
Have you maximized your RRSP contribution?
Your allowable RRSP contribution for 2017 is 18% of your earned income from the previous year, up to a maximum of $26,010. You have until March 1, 2018 to make your RRSP contribution for 2017.
Have you maximized your TFSA contribution?
You can contribute up to $5,500 to a TFSA for 2017, as long as you are 18 or older and a Canadian resident. Though contributions are not deductible, any income earned in a TFSA is never taxed, even when it’s withdrawn.
Have you maximized the tax benefits of your capital gains and losses?
If you own investments with unrealized capital losses, consider selling them before year-end to realize the loss and apply it against any net capital gains you have realized during the year or in the three prior years.
Have you optimized your investment portfolio mix?
Because different types of investments are taxed differently, you will want to ensure that you have the optimal mix to get the best after-tax returns. Consider whether it is more beneficial to hold investments that yield eligible dividends rather than capital gains. This will depend on your marginal tax rate and province of residence. Be aware that eligible dividends can trigger an AMT liability. For individuals in lower tax brackets, eligible dividends could be tax-free or reduce tax on other income.
Have you considered loaning money to your spouse and splitting the income?
You may want to consider loaning funds to your spouse if they are in a lower marginal tax bracket than you. Your spouse can invest the loan proceeds and include any income/capital gains in their income, provided you are paid interest on the loan at the prescribed rate in effect at the time the loan is made.
Have you considered whether you can benefit from the Canada Child Benefit (CCB)?
The CRA uses information from your income tax return to determine whether you qualify for the benefit and what your payments will be. To get the CCB, you have to file your return every year, even if you did not have income in that year. If you have a spouse or common-law partner, they also have to file a return every year. Keep in mind that even if you are a higher-income earner, you can qualify for some CCB payments depending on how many children you are raising and your adjusted family net income. For instance, if you have two children and a family income of $148,000, you could be eligible for a child benefit of over $3,300. The government recently announced that these benefits will be increased for inflation for the 2018-2019 period.
Have you planned when to start receiving your Canada Pension Plan (CPP) payments?
You can start to collect CPP benefits as early as age 60 and as late as age 70, but keep in mind that your pension will be reduced by 0.6% for each month you start to receive benefits before age 65. On the other hand, if you’re 65 years of age or older and have not yet started to collect CPP payments, you may be able to increase your pension entitlement if you wait to start collecting payments. You may also want to consider splitting CPP payments with your spouse if they are in a lower tax bracket than you and you’re both at least 60 years of age.
Have you managed your net income to avoid the Old Age Security (OAS) clawback?
The government imposes a special tax on your OAS payments if your net income for the year exceeds a certain annual threshold. For 2017, the starting threshold is $74,788. The full amount will be eliminated when your net income reaches approximately $121,070. If you have the ability to manage the amount of income you receive in a year, keep these thresholds in mind. Pension splitting with your spouse is one strategy that you may be able to use to reduce your net income below the income threshold.
Have you paid your expenses by the CRA deadline and kept your receipts?
If you plan to make payments that may be eligible for tax deductions or credits on your 2017 income tax return, you’ll need to make many of these payments before the end of the year. Payments to consider include medical expenses, fitness and arts costs for your children, investment counsel fees and interest, as well as charitable and political donations.
Have you considered upcoming changes to the Voluntary Disclosures Program (VDP)?
The CRA is proposing changes that would significantly alter the VDP, possibly starting January 1, 2018. If you have any non-compliance to correct, you may want to do this before the new year.
- If you own property in the United States, have you considered your US estate tax exposure?
- If you sold your primary residence this year, have you kept documents related to the sale on-hand for when you prepare your personal income tax return?
- Have you reduced the taxable benefit for your company car?
- Have you planned your debt structure to maximize your deductible interest?
- Have you optimized the timing of the purchase or sale of long-term investments or mutual fund units?
- Have you paid your personal tax instalments?
- Have you considered how the July 18, 2017 proposals might affect you and your family?
Effective tax planning throughout the year can help you save money at tax time. If you’d like to meet with us to review your tax situation and determine what steps you can take in the remaining weeks of 2017 to manage the taxes you pay, please give us a call at 604-534-7701 or email us at email@example.com.