End-of-year considerations that may reduce the tax you pay

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.

RRSP contributions

  • 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 The funds can be withdrawn as a lump sum, converted to an annuity, or transferred to a Registered Retirement Income Fund (RRIF).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.

Tax-loss selling

  • 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

  • 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.

Bob Joyce, CPA, CA, CFP®

Bob Joyce

Bob is a CPA and CFP professional. As a CPA, Bob provided tax and accounting services to individuals and corporations before joining a large full-service wealth management firm. With almost 50 years of experience advising clients in the fields of estate, tax, and financial planning, and a genuine desire to understand and help clients, makes Bob distinctively qualified to help you achieve your personal financial goals and objectives.

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