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There’s still time before year-end to make a a few tax and investment moves that could save you tax for 2021. But you have to act before Dec. 31 to take full advantage.
There are a number of payments you might consider making before year-end in order to get a tax deduction for 2021. These include charitable donations (this late in the year, to ensure your donation is processed for 2021, make your donations online), interest payments on money borrowed for investment purposes, and investment counseling fees for non-registered accounts (fees charged by your advisor for managing investments in RRSPs and TFSAs are not deductible). Try to make medical or dental payments for items not covered by provincial health plans, such as glasses, prescription drugs, and hearing aids. You can add them to your medical expense deduction for 2021.
Make eligible 2021 payments to a Registered Education Savings Plan and a Tax-Free Savings Account. Most plans let you accumulate and carry forward contribution room into future years, but why wait? The sooner you contribute, the sooner you start earning tax-advantaged compound growth in your plan. But wait until January to make a withdrawal from your RRSP or RRIF, so you’ll defer the tax hit for another year.
To take advantage of any investment losses in 2021, consider selling before year-end to offset any capital gains you might have made. To qualify for a 2021 tax loss, the settlement must take place in 2021.
Because it takes three business days to settle a transaction, the last day to sell most securities in Canada to be eligible for a capital loss in 2021 is Dec. 24 for settlement by Dec. 31, 2021. For U.S. exchange-traded stocks, different rules apply, and you may have another day’s leeway. But check with your broker or advisor now, while you still have time, to be absolutely sure you can meet the various transaction deadlines.
Some investors have considered taking gains this year instead of waiting, in the event that the Liberal government raises the capital gains inclusion rate next year in order to maintain the support of the NDP to retain minority government status. (The NDP pledged to raise the rate as part of its platform during this year’s election.)
If you do end up taking gains and losses, this is also a great time to review your asset weightings with your advisor, with a view to normalizing allocations and diversification. Trim or switch where necessary, using those capital losses to offset gains in the current year where available. And don’t forget to apply any unused losses carried forward from previous years.
Check with your advisor before buying mutual fund units in December. In a non-registered account, you could end up paying tax without ever benfitting from capital gains. It all has to do with year-end capital gains distributions made by mutual funds, which impact net asset value. Instead, wait, and invest in the fund in January. (This won’t necessarily apply to exchange-traded funds.)
Business owners should consider buying computer and other equipment now rather than deferring purchases to January. Your capital cost allowance (CCA) will increase for the year, even though you’re entitled to claim only 50% of the allowable CCA for a particular class (the “half-year rule”). Your CCA claim for 2022 will also be that much larger. Consider delaying disposition of depreciable assets until January to avoid reducing your CCA claim for 2021.
Are there areas where you can bring forward deductible business expenses into 2021? This could include advertising or supplies, for example. A tax deferred is a tax saved, so consider delaying business income due in December until January (if you have a Dec. 31 year-end), thus reducing your tax bill for the current year.
Individual situations vary and change with circumstances. As always, consult a qualified advisor when contemplating changes to your investment portfolio or when considering tax-driven business strategies.
Robyn Thompson, CFP, CIM, FCSI, is the founder of Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management for high net worth individuals and families. Contact her directly by phone at 416-828-7159, or by email at rthompson@castlemarkwealth.com for a confidential planning consultation.
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The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned are illustrative only and carry risk of loss. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.
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