It's Your Money  

Tax planning tips for what to do before the end of the year

End of year tax tips

With the end of the year fast approaching, Canadian taxpayers will want to consider all the tax planning opportunities available to them.

While you can make an RRSP contribution in the first 60 days of 2022 that can be used as a deduction on your 2021 tax return, most other tax-related strategies must be implemented by Dec. 31, 2021. Overall, the key to effective planning is being well-prepared. In this article, we’ll discuss key opportunities and strategies to consider.

If you have non-registered investments with unrealized capital losses, you may want to consider triggering these losses to offset capital gains from the current year, or net capital gains in any of the three prior taxation years. This is referred to as "tax loss selling”.

Capital losses can be applied against net capital gains realized this year. If those capital losses exceed any capital gains recognized this year, they can be carried back to offset net capital gains realized in any of the three previous years (or forward indefinitely).

If tax loss selling is something you are considering, it’s important to be aware of a complicated set of tax rules that can potentially deny those capital losses called the “superficial loss rule”. Lastly, if you are considering this approach, we also encourage you to speak with your accountant to ensure any losses you trigger can be claimed as intended.

If you are considering selling a non-registered investment that has an unrealized capital gain, you could delay the sale of the investment until the new year to defer the taxes on the capital gain one year. Although this may be beneficial from a tax perspective, you also need to consider your investment objectives in considering this option.

You may alternatively be considering making a charitable donation before the end of the year to take advantage of the charitable donation tax credit for 2021. If you have non-registered investments with unrealized capital gains you should consider using those funds to make an in-kind donation to the charity as you will receive a charitable donation tax receipt equal to the market value of the investment and the capital gain triggered by the donation will be exempt from tax.

From a registered account perspective, the considerations will vary based on the type of account and your specific situation. Examples include:

• If you are considering making a TFSA withdrawal, a withdrawal before the end of 2021 would create additional TFSA contribution room in 2022 while a TFSA withdrawal in 2022 would not create additional TFSA contribution room until 2023. If you are planning a TFSA withdrawal in early 2022, consider whether it could be withdrawn before the end of 2021 instead.

• Do you have a child who turned 15 in 2021 and have not yet opened a Registered Education Savings Plan (RESP)? Making an RESP contribution of $2,000 before Dec. 31, 2021 would not only allow you to receive the Canada Education Savings Grant for this year, but also for an additional two years on contributions of up to $5,000 per year.

• If you are considering purchasing a home in 2022 or 2023 and using the Home Buyers’ Plan (HBP) to help fund the down-payment, you should delay the HBP withdrawal until 2022 as this will extend the timeframe to purchase a qualifying home an additional year, until Oct. 1, 2023, compared to a withdrawal made before the end of 2021 This will also delay the timeframe in which you must start to repay the HBP withdrawals by a year.

Income splitting can be one of the most effective ways to save tax for your family, now and in the future. Some examples include:

• If you are saving for retirement, consider a spousal RRSP. While the pension income splitting rules (currently) allow a spouse who is 65 years of age or older to allocate up to 50 per cent of their RRIF income to the other spouse a spousal RRSP contribution will provide a tax deduction for you now and 100% of the future retirement income is taxed in the hands of your spouse (assuming the spousal RRSP attribution rules are not triggered).

• Certain income splitting strategies can be implemented with adult children and/or your spouse or common-law partner, such as gifting money to a spouse or adult child to make contributions to their TFSA account.

• Another consideration is loaning funds at the prescribed rate to your spouse or adult child, directly or indirectly through a family trust, to invest in non-registered funds. The prescribed rate loan strategy may be particularly attractive now as the current prescribed rate is only one per cent.

There are many other strategies that could be suitable for you as well. While I don’t have space to go into detail for each one, here are a few other areas that you may want to explore further with your Financial Planner professional:

• Charitable giving

• Maximizing your tax credits and deductions

• Planning for disabled individuals

Taking the time to review your tax situation before the end of the year may result in significant savings. And don’t wait until the last week of the year to get the ball rolling!.


Outlook bullish for equities heading into the fourth quarter

Bull market?

It’s been a little while since I dedicated one of my columns to a market update – looking back at the past quarter, as well as forward for what’s to come.

Looking back at Q3, global equities were mixed in local currency terms, but most markets delivered positive returns in Canadian dollars as the weaker Canadian dollar added to returns from international investments for Canadian investors.

Major benchmarks in Canada, the U.S. and EAFE areas touched record highs before giving back nearly all gains in the final weeks of the period as bond yields rose. Of the major U.S. indices, only the S&P 500 Index finished higher for the quarter. The TSX (Canadian) index posted a gain of only a small fraction of a per cent.

Major European equity markets were mostly higher with Italy leading the way, while Germany’s DAX Index declined. Japanese equities surged in September after Prime Minister Suga announced he would not run for re-election in the Liberal Democratic Party's leadership race, increasing the prospects of more fiscal stimulus.

Hong Kong assets sold off alongside turbulence in Chinese mainland stocks as the government’s regulatory crackdown extended to several additional industries. Toward the end of the period, selling focused on property developers after heavily indebted China Evergrande told major lenders not to expect scheduled interest payments, raising concerns about a possible systemic shock to the wider bond and stock markets.

Growth-oriented stocks and large-capitalization stocks outperformed value-oriented and small-capitalization stocks in most regions. Equities mostly shrugged off concerns about economies hitting a soft patch. Instead, investors took heart from robust corporate earnings growth and indications from most central banks that they were in no hurry to raise interest rates, even though expectations for the timing of tapering of asset purchases have moved forward.

In the TSX, industrials and consumer staples led sector performance. Health care led declining sectors with a drop of close to 20 per cent, mainly due to weakness among shares of cannabis companies. The consumer discretionary sector was down, mainly due to Magna International Inc., which cut revenue forecasts because of ongoing shortages of semiconductors.

Canadian fixed-income markets were mostly lower due to rising yields, while most international bond markets made slight gains in Canadian dollars. Benchmark yields fell in the first part of the period due to concerns about slowing economic growth and the steadfast conviction of central banks that inflation was transitory and official interest-rate hikes were a long way off. The second half of the period was marked by rising yields and falling bond prices as several central banks displayed more hawkish tones, either moving to taper their asset purchase programs or talking about doing so imminently.

So, what’s to come? Outlooks generally remains bullish for equities heading into what is typically the strongest quarter of the year. Central bank policies continue to be accommodative, even with a reduction of asset purchases. If pricing pressures prove to be transitory, central banks will not raise benchmark rates anytime soon.

Bond markets may still be challenged by higher yields due to economic growth and anticipation of asset purchase tapering. Volatility will likely remain elevated due to several sources of risk, including economic slowing, pandemic-related uncertainty, U.S. congressional wrangling over spending plans and the debt ceiling, and the possibility that unrest in China becomes a headwind for global markets.

Tips to help you prepare for your retirement finances

Planning for retirement

Are you fearful of what your retirement will look like?

If so, you’re not alone. Many Canadians are fearful of what their retirement will look like because there is so much unknown of what it will look like.

Some of the biggest retirement mistakes are caused by a simple lack of communication and planning. Whether you are currently retired or still a few years out from that magic date, take a few minutes to read over the most common mistakes and see if any of them sound familiar to you:

Only one spouse is handling the finances - It’s very important that both partners actively participate in financial matters. If only one spouse handles everything and they become ill or pass away, it can be an tough shock to the surviving partner in an already difficult time.

You assume that your estate will be “simple” – Every couple needs to have a will, power of attorney and a representative agreement no matter how straightforward you feel your affairs are. Just because you are married, it doesn’t mean your spouse can automatically make decisions on your behalf if you are unable to.

Also, think very carefully about who you appoint as your executor. While many people assign an adult child to this role, you need to carefully evaluate if they are actually up to this task – and you also need to ask them if they want to take it on.

You have never really talked about your expectations for retirement – While you’re busy working and raising a family, life seems to fly by and you probably don’t have enough free time to worry about how you’re going to fill it. When you retire, you may find out you have a lot more time on your hands and you may see your spouse a lot more than you are used to.

It’s important to sit down with your partner and find out what each of you envisions for your retirement – you may have very different ideas of what it will look like and a discussion of what you foresee can go a long way in understanding and adapting to each other’s ideas.

Is your portfolio able to support an emergency? – Although you may be able to survive comfortably on your retirement savings, pension and government benefits, you need to evaluate how your portfolio will fare if an emergency strikes.

An illness, major home repair or other financial emergency should be considered up front and you need to have a plan in place to fund these unexpected costs. Ideally, an emergency fund in a TFSA or Non-Registered investment account should be earmarked for the unforeseen emergency which will give you a great deal of peace of mind.

Many couples have no financial or retirement plan – A properly structured financial plan will include all of the above items plus many more. Ideally this plan will be created at an early age and you will adjust and adapt it as you get closer to retirement.

However, no matter what age or stage you are at, if you don’t already have a plan in place it’s better late than never. Your retirement plan should have realistic estimates of how much money you will need in retirement and aside from what many people think, you will often need more income per year, not less to reach your retirement goals.

Retirement planning is an evolving process and one that requires regular checkups and adjustments to keep on track. While certainly significant ones, the above mistakes I outlined are only some of the many pitfalls that can have significant impact on your retirement and financial future.

If you haven’t done so already, speak to a certified financial planning professional to make sure your retirement is on the right path.


Dealing with passing on, or inheriting, family wealth

Giving, getting inheritance

Did you know that many Canadians are not adequately prepared to pass on or inherit family wealth?

This is often due to a lack of communication and planning.

The good news is that it’s never too early or too late to start. Planning helps you identify tax saving opportunities, mitigate potential financial gaps, and maximize your current lifestyle.

Here are 10 actions you can begin to take today:

Clearly define what legacy planning means to you

Having conversations with your parents or children about topics like death and inheritance can be uncomfortable. To help family members feel more invested in the outcome, it helps to approach this as a values- and goals-based conversation, rather than simply talking about the details of a will. Initiating these conversations from an aspirational tone often helps ease into the heavier topics.

Prepare now for the unexpected

Our needs change over time, and the financial well-being of loved ones can be impacted across generations. Whether for yourself or your parents, it’s important to keep your family informed and ensure you have the right risk protection plan in place. This might include long-term care financial planning or life insurance strategies.

Think about your family structure

The way you shape your legacy will largely depend on the structure of your family. Every family has different dynamics, and a well-structured estate plan is unique to each family situation. For example, estate planning for blended families can be considerably more complex. Another important consideration is beneficiaries with special needs.

Ensure your estate is passed on in the most tax effective manner

Speak to a tax expert to ensure that your estate will be structured in a way that results in the highest after-tax result. Keep in mind that each province or territory has different tax considerations that will impact your decisions.

Take care with special assets like family businesses and vacation properties

Depending on your family structure, when dividing up an estate, some assets may be more appealing to one recipient than another and more complex to share. Ensure everyone is clear on your decisions and reasons, including tax implications and responsibilities.

Address personal items with sentimental value

Value isn’t always defined by dollars. Often there are items that hold great sentimental value, such as family heirlooms, jewelry, artwork, or furniture. It’s important to communicate your intentions with these items as well, rather than assume what loved ones may or may not want to inherit.

Consider a trust

If a beneficiary is still relatively young or is someone requiring oversight in managing a large amount of money, talk to a tax and estate expert on how best to structure the inheritance so it is used appropriately.

Plan charitable giving carefully to maximize the tax benefits

How will charitable giving benefit your overall estate? A carefully constructed giving plan helps create a legacy that expresses your values and the causes you care about, while also reducing your income tax liability.

Identify important roles

Choosing a personal representative (sometimes referred to as an “executor/executrix,” “liquidator” or “estate trustee” depending on where you live) is a critical decision during the estate planning process. Other important roles include power of attorney, trustee, guardian if you have young children, and caregiving roles for elderly parents or family members with disabilities.

Address financial literacy early

Many parents are concerned with their children’s ability to manage their inheritance, even adult children. These conversations will include many financial terms that some family members, especially younger children, may not understand. The earlier you start on this the better but it is also never too late to begin!

It’s also important to remember that when you put a wealth transfer plan (also known as an estate or legacy plan) in place, you don’t have to feel like it’s set in stone. As your family grows and evolves, so can your plan—so make sure to review and update it on a regular basis.

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About the Author

Brett, designated as a chartered investment manager and certified financial planner, is the regional director (Okanagan) for IG Wealth Management.

In addition to his “day job," Brett was appointed to the board of directors of FP Canada (formerly FPSC) in 2014, named as the board’s vice-chair in 2017 and took over as board chairman in 2019. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FP Canada board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected]

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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