Top 10 Personal Tax Tips for 2016

1. Realize capital losses to offset current year capital gains

If you have realized capital gains in the current year and unrecognized capital losses in other investments, consider disposing of the loss investments prior to the end of the calendar year in order to offset the capital gains.

2. Realize capital losses in 2016 to offset capital gains realized in 2013 to 2015.

Capital losses can be carried back for three years to recover tax paid on capital gains. For example, a $100 capital loss in 2016would trigger a $50 allowable capital loss; if you have no capital gains in 2016, this capital loss could be used to offset a capital gain in any of the three preceding years, from 2013 to 2015.

3. Maximize your RRSP contributions

Don’t wait until the deadline to invest in an RRSP. The sooner the contribution the longer the investment can grow in the RRSP on a tax deferred basis.

4. Consider spousal RRSP contributions

If your spouse’s retirement income is expected to be less than yours, consider making a contribution to your spouse’s RRSP as opposed to your own.

5. Contribute to an RRSP by December 31 if you are 71 years of age

Taxpayers are required to convert their RRSP to a RRIF in the year in which they turn 71 years of age. However, a final contribution is allowed in the year in which they turn 71. In the event the taxpayer has earned income in 2016, in addition to their normal contribution, they could contribute 18% of their 2016 earned income, to a maximum of $26,010. Although the over contribution will be assessed a penalty equal to 1% per month, if the contribution is delayed until December, the penalty will be minimized and the contribution can be deducted in 2017.

6. Consider Registered Education Savings Plans (RESP)

Although contributions to an RESP are not tax deductible, the investment earnings are sheltered and not subject to tax until withdrawn by the child when he or she is pursuing post secondary education and will, in all likelihood, be in a low income tax bracket. Effective for 2007 and subsequent taxation years, the $4,000 annual RESP contribution limit has been eliminated, and the lifetime RESP contribution limit has been increased to $50,000 from $42,000. A Canadian Education Savings Grant (“CESG”) equal to 20% of contributions to a maximum $500 per year (maximum of $400 per year prior to 2007) for a beneficiary 17 years of age or under, will be invested directly into the Plan. The lifetime limit of the CESG is $7,200. Top 10 Personal Tax Tips This information is intended for general purposes only. Care has been taken to ensure the information herein is accurate. However, no representation is made as to its accuracy. This information should not be relied on to replace professional advice relating to your specific circumstances.

7. In the event charitable donations are contemplated, consider the donations of publicly traded securities

The capital gains inclusion rate is reduced to zero on capital gains arising from the gift of qualified securities to most charities and most private foundations.

8. Choose your investments wisely

With regards to earning investment income, dividends, after the dividend tax credit, may yield a better return than interest, which is fully taxable.

9. Interest Deductibility

CRA has clarified their policy on interest deductibility as a result of various Supreme Court of Canada tax decisions. Where taxpayers can demonstrate that the aggregate eligible expenditures from a commingled cash account exceed the amount of borrowed money deposited to that account, CRA will generally accept that the taxpayer has satisfied the test of tracing/linking borrowed money to eligible investments.

10. Miscellaneous Tips

• All charitable donations should be claimed on one spouse’s tax return, rather than splitting the donation claim between spouses based whose name is on the donation receipt.
• Medical expenses should generally be claimed on the lower income spouse’s return.
• If you purchase Canada Savings Bonds using a payroll purchase plan, the interest charged by your employer to participate in the plan is deductible.
• If you do not wish to claim student loan interest on the return for the year they are paid, you can carry it forward and apply it against any one of the next five year’s returns.

 

This information is intended for general purposes only. Care has been taken to ensure the information herein is accurate. However, no representation is made as to its accuracy. This information should not be relied on to replace professional advice relating to your specific circumstances. 

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