Effective tax planning takes place year-round, but there is still time in December to consider whether there are steps we can take to legally minimize the amount of income tax we must pay.
- Your available RRSP contribution room for 2022 is found on your 2021 Notice of Assessment.
- RRSP contributions made before March 1, 2023 can be claimed on your 2022 income tax return.
- If you expect your income to be higher in a future year, you can carry forward contributions to your RRSP to increase your tax savings.
- If you turned 71 this year, you must terminate your RRSP by the end of the year. The funds can be withdrawn as a lump sum, converted to an annuity, or transferred to a Registered Retirement Income Fund (RRIF).
- Lump-sum withdrawals are less popular because the proceeds will be fully taxable, while transfers to an annuity or RRIF will continue to receive the benefit of a tax deferral.
- Spousal RRSPs can be a vehicle for income-splitting if one spouse is in a lower income tax bracket. Contributions to a spousal RRSP will be deductible on the contributor’s tax return, subject to their contribution limit. Provided withdrawals are made more than 3 years after the contribution, the amount will be included in the spouse’s taxable income. For this reason, it is preferable to make the contribution before December 31.
- Contributors over 71 years of age can make a spousal contribution if the spouse is 71 years of age or under.
- If you hold a security in a non-registered account and you no longer feel it is s good investment, consider selling it before December 29.
- Beware of the superficial loss rules if you intend to repurchase the securities you sell at a loss. The loss cannot be claimed if you purchase an identical security 30 days before or 30 days after the settlement date.
- Charitable donations can be claimed as a non-refundable tax credit on your tax return, and unused contributions can be carried forward for up to 5 years.
- Donations of marketable securities can be particularly beneficial. The fair market value of the marketable security will be eligible to claim as a donation tax credit. Furthermore, any accrued capital gain on the donated securities will not be subject to tax on your tax return.