TORONTO, Dec. 6, 2011 — As 2011 comes to a close,, Canadians are wise to be mindful of looming tax deadlines and should take some available downtime during the holidays to tackle year-end tax planning.
Before ringing in the New Year, there are key tax deadlines to meet before Dec. 31 as well as tax strategies to think about for 2012. The following are three areas with tax implications Canadians should be aware of, as discussed in PwC’s annual Year-end tax planner that launched today
“This month is a busy time for tax planning as many important deadlines fall at year-end and the holidays also provide downtime for families to come together to evaluate and plan their investments,” says Jason Safar, partner, tax services, PwC. “This is a crucial time period to maximize tax reductions for the current year, while avoiding the scramble that leads up to April’s income tax deadline.”
The holidays are a charitable time of year and for those hoping to make a donation to count towards a tax deduction for 2011 must do so before Dec. 31.
Individuals should also consider donating stocks instead of cash—a generally unexplored tax break. Donating publicly-traded securities is a tax effective way of charitable giving as donors don’t have to pay capital gains tax on the accrued value. Savvy investors could even buy the same securities on the market with the money they saved from donating stocks instead of cash.
In the last federal budget, the government curtailed the use of flow-through shares for charitable planning. The legislation limits the capital gains tax exemption so it is best to check with your accountant if this applies to you.
It is best to make your contribution to your TFSA early in the year to take advantage of the tax savings on your investment income. For withdrawals, consider doing so before the end of 2011 instead of early 2012. Amounts withdrawn are not added to your TFSA contribution room until the beginning of the following year after the withdrawal.
For stock exchanges, the final trading day to settle a trade is likely Dec. 23 for Canadian-listed securities to count as a 2011 sale. The early deadline allows for extra processing time for the three business days it takes to settle the transaction over the holiday period.
Consider delaying mutual fund purchases to January 2012 or consider selling mutual funds before year end to minimize your allocation of taxable income for 2011.
Before the rush hits in the New Year, also evaluate whether you’re taking full advantage of RRSPs and RESPs for the 2011 tax year. Year-end is also an ideal time to research how to set up a tax efficient investment portfolio for the next year. Be aware of tax implications that vary by province as this may influence your choice of investment mix. Depending on where you live, eligible dividends may be taxed at a lower rate than capital gains.
Tax credits and deductions
There are a range of credits and deductions that exist to help individuals and families reduce their taxes. However, many aren’t aware they exist, what qualifies and the tax deadline. Final payments for most tax credits, including child care and child fitness expenses, moving expenses and tuition fees are due Dec. 31. Don’t forget that in 2011 there is a new federal children’s art tax credit that you may be eligible to claim. Before the deadline, evaluate if you qualify for the credits and remember to obtain receipts.
Individuals with money to invest and a spouse in a lower tax bracket can benefit from income splitting. A prescribed rate loan arrangement is one relatively simple income-splitting plan. The current rate is 1% but it is recalculated every quarter so taxpayers may wish to act now before a possible increase in the prescribed rate.
The federal government has introduced new additional restrictions on what a RRSP or RRIF can invest in. The new rules can result in significant penalties such as a 100% penalty on income or gains attributed to prohibited investments. This applies to transactions occurring, income earned or, capital gains accruing after March 22, 2011.
“There is no magic to tax efficient planning. It takes a bit of knowledge, some forethought and ongoing diligence,” says Safar. “Ensuring you meet the deadlines now and planning before the rush hits could translate into a bigger tax refund in April.”Tax deadline checklist for Dec. 2011 to Apr. 2012:
For more information, read PwC’s Year-end tax planner 2011 at www.pwc.com/ca/yep.
For personal and corporate tax rates for blackberry users http://bit.ly/fyKItH
For an additional tax resource, PwC has recently launched its Personal Income Tax Calculator, at www.pwc.com/ca/en/personal-tax/calculator.jhtml.
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