Year-End Tax Planning Tips
Unfortunately there is one constant in life, taxes. Therefore we have provided some last minute tips to help reduce your overall tax costs for 2009.
NEW FOR 2009 AND 2010
Home Renovation Tax Credit (HRT
The 2009 Budget introduced a non-refundable tax credit for eligible expenses in excess of $1,000, but not more than $10,000 made on eligible dwellings. The maximum credit will be $1,350 ($9,000 x 15%). The credit will be available for expenditures on goods acquired between January 28, 2009 and January 31, 2010. It may be claimed in the taxpayer’s 2009 personal tax return even if qualifying expenses were incurred in 2010.
Home Buyers Plan (HBP)
The HBP permits individuals to make tax-free withdrawals from an RRSP for the purpose of purchasing a home. The 2009 Budget increased the maximum eligible withdrawal after January 27, 2009 to $25,000 (previously $20,000). The maximum withdrawal for each individual must be repaid over fifteen years. To utilize the plan, an individual must be a “first-time home buyer”, defined as an individual who, along with their spouse, has not lived in an owned home at any time in the four calendar years prior to the time of withdrawal. A qualifying home must be purchased prior to October 1 of the year following the year of withdrawal.
First Time Home Buyers' Tax Credit
The 2009 Budget proposed a non-refundable tax credit for first time home buyers who acquire a qualifying home after January 27, 2009. The credit can be claimed in the year in which the home is acquired and equates to $750 for 2009 ($5,000 x 15%). An individual will be considered a first-time home buyer if neither the individual nor the spouse/common-law partner owned and lived in another home in the year of purchase or in any of the prior four years.
RRSP/RRIF Losses After Death
At the time of an annuitant’s death, the fair market value of investments held in an RRSP or RRIF is generally included in the income of the deceased for the year of death in the absence of a spouse or dependant rollover. Any subsequent increase in the value of the investments is generally included in the income of the beneficiaries when the RRSP or RRIF is distributed.
Before the 2009 Budget, there were no provisions to allow for a decrease in the value of RRSP/RRIF investments that occurs after the annuitant’s death and before distribution to beneficiaries.
The 2009 Budget allows for a deduction for such a decrease. This deduction would be carried back and deducted against the RRSP/RRIF income inclusions in the final return of the deceased. This measure applies where the final distribution from the RRSP/RRIF occurs after 2008.
OTHER COMMON TAX PLANNING CONSIDERATIONS
- Pay interest on employee loans before January 30th
- Reimburse personal operating costs on employer provided automobiles before February 14th
- Review your personal use of employer-provided automobiles
- Purchase employment-related assets before year-end
- Review tax-free gifts, awards and social events
Many Planning points are available to individuals who carry on a business
- Pay reasonable salaries to family members before year-end
- Purchase capital assets before year-end
- Deduct business use of home for storage or office space
Owner- manager considerations
If you carry on your business through a corporation, there are even more planning points available to you.
- Pay dividends from your corporation
- Establish your salary/ dividend mix from the corporation
- Consider paying interest on shareholder loans
- Consider planning to reduce your corporation's taxable capital before year-end
- Purchase older automobile from your corporation
Be sure to take into consideration the timing of the receipt of income and the tax consequences when investing
- Review the mix of investments in your portfolio
- Consider the timing of the taxation of interest-earning investments
- Review your outstanding debt to ensure that you make your interest expense deductible to the
- maximum extent possible
- Consider delaying mutual fund purchases
Capital gains and losses
Only 50% of capital gains and losses realized are recognized in calculating taxable income.
- Utilize your capital gains exemption for qualified small business corporation shares and
- qualified farm/fishing property
- Defer capital gains where proceeds reinvested in a small business corporation
- Consider selling investments with accrued losses before the end of the year
Saving for retirement
- Make a contribution to your RRSP for 2009
- Withdraw RRSP funds in low income years
- Ensure that your 2009 earned income allows the maximum 2010 RRSP contribution
- Purchase an annuity of RRIF to claim the pension income credit
- Review pension income splitting with spouse
- Delay RRSP Home Buyers' Plan (HBP) withdrawals until after year-end
- Remember to make your required Home Buyers' Plan repayment by February 28, 2010
- Remember to collapse your RRSP if you will turn 71 this year
- Consider contributing to an individual Pension Plan
Deductions and credits
- Pay amounts eligible for deductions or credit prior to December 31st
- Pay for medical expenses and charitable donations in one year
Other Year-end planning
- Review your family trust's tax situation
- Make tax installments by the required due dates to avoid non-deductible interest and penalties
- Contribute to your RESP
Tax planning should be a year-long event for it to be effective. Many of these tax planning ideas are easily implemented with little or no cost or administration. Others are more complicated and will require professional advice. Be sure to consult with your tax advisor for assistance in your particular situation or contact Williamson Accounting: 416-444-8747.