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Year End Tax Tips

Jamie Golombek, Managing Director, Tax and Estate PlanningCIBC Private Wealth Management

December 2009

#1 - Tax loss selling - transfers

Transfer to RRSP?

Loss denied

Crystallize first, wait 30 days to buy back

Transfer to TFSA?

Loss denied

Transfer to RESP?

OK, but if held for 30 days, “superficial loss”

#1 - Tax loss selling – “superficial loss”

Superficial loss- Buy “identical property” within 30 calendar days- Who?

You Spouse/partner Corporation controlled by you/spouse/partner Trust, if you or spouse is majority-interest beneficiary

Transfer to parent / child – OK

Switch funds (3rd party funds)- Corporate to trust version (vice versa)- Not identical properties

Two index funds? – CRA says “identical”

#1 - Tax loss selling – spousal transfer of losses

Spousal loss transfer

Victor + Maureen

- Maureen – ABC Shares - $10,000 accrued capital gain

- Victor – XYZ Shares

ACB - $50,000

FMV - $40,000

#1 - Tax loss selling – spousal transfer of losses

Step one – Victor sells XYZ shares for $40,000

- Capital loss of $10,000

Step two – Maureen buys XYZ shares, pays $40,000

- Victor’s $10,000 capital loss is now “superficial”

- Added to ACB of Maureen’s shares ($10,000 + $40,000 = $50,000)

Step three – Maureen waits 30 days, sells for $40,000

- ACB - $50,000

- FMV - $40,000

- Capital loss of $10,000 can be used against ABC accrued gain

#2 - Home ownership and prospective home ownership

Home Renovation Tax Credit

First-Time Home Buyers’ Tax Credit

Home Buyers’ Plan

#2 – Home Renovation Tax Credit (HRTC)

Expenditures over $1,000 Maximum of $10,000

Credit worth 15% of $9,000 = $1,350 Per family (spouse/partner, minor kids) From Jan 28, 2009 until Jan 31, 2010 Eligible expenses?

Labour, professional services Building materials Equipment rentals Permits

Ineligible? Routine maintenance Furniture, drapery, appliances Interest expense

#2 – Home Renovation Tax Credit (HRTC)

Air conditioners

Condo renos – specific/general

Docks

Driveways

Landscaping

Sauna

Solar panels

Swimming pools / hot tubs

Materials purchased before Feb 2010 qualify even if they are installed after January 2010

Labour only qualifies if work is done before February 2010, even if prepaid

#2 - First-Time Home Buyers’ Tax Credit

New $5,000 amount eligible for 15% credit Value = $750

“First-time home buyer” Neither individual nor spouse/partner owned home in current or previous

four calendar years

One claim per family Unused credit can be transferred to spouse/partner

#2 - Home Buyers’ Plan

$25,000 can now be withdrawn from an RRSP, tax-free

Must be paid back over 15 years to avoid annual income inclusion

“First-time home buyer” Neither individual nor spouse/partner owned home in current or previous

four calendar years

DEFER participation to January 2010 to delay repayment until 2012 (vs. 2011)

#3 – RRSP annuitants who turn 71 in 2009

Convert to RRIF (or annuity) by December 31

Final RRSP contribution must be made by December 31

No sixty day rule

Unless spousal RRSP with younger spouse/partner

#3 – RRSP annuitants who turn 71 in 2009

Consider one-time “over-contribution”

Client (71) has $100,000 of earned income in 2009

Will create $18,000 of RRSP contribution room for 2010

Contribute $18,000 to RRSP in December 2009

Pay penalty of 1% or $180 for month of December

Deduct contribution in 2010 (or future year) against ANY source of income

#4 – Contribute to an RESP

$50,000 per child

No annual maximum

Maximize Canada Education Savings Grants (CESGs)

20% on first $2,500/annually = $500

Catch-up CESGs back to 1998

• Max of $1,000 of CESGs per year

$7,200 per child maximum

Child turned 15 in 2009 with no RESP?

Contribute at least $2,000 to RESP in 2009 to get CESG for 2009 and make child eligible for 2010 and 2011 CESGs

#5 – Charitable donations

Must be made by December 31st

No capital gains tax on “in-kind” donations of publicly traded securities to charity

Consider “donor advised funds” through public foundation

#6 – Contribute to a Registered Disability Savings Plan

$200,000 lifetime limit

Age 59 and under to open

Age 49 and under to get government funds:

Canada Disability Savings Grants

• Family income < $77,664 (2009)

300% of first $500

200% of next $1,000

• Family income > $77,664

100% of first $1,000

• Lifetime max: $70,000

#6 - RDSPs (cont’d)

Canada Disability Savings Bonds

Family income < $21,816 (2009)

• $1,000 annually (no contributions required)

Family income > $21,816

• Reduced pro-rate until eliminated at income > $38,832 (2009)

Lifetime max: $20,000

#7 – Purchase business assets

Claim a half-year’s depreciation even if asset bought on December 31st

Accelerated tax depreciation for computer purchases

Can write off 100% of cost of computers in year acquired

No “half-year” rule

For purchases from January 28, 2009 through January 31, 2011

#8 – Spousal/Partner Loan at 1%

Spouse or partner gifts/transfers funds

- FULL attribution of income / gains to transferor

Exceptions:

Pay FMV or prescribed rate loan

Rate for Q4 2009 – 1%

Lowest ever!

Jack loans Diane $200,000 Investment earns 5% annually

Income splitting opportunity: $8,000Tax Savings (ONT): $8,000 X (46.41% - 21%) = $2,033 annually

Income $2,000

#8 – Spousal Loan at 1% (Example)

Jack $200,000

Interest Expense – 1%

Income $10,000Interest expense (2,000)Net income $ 8,000

Diane

#8 – Spousal Loan – Rate Reset?

What if you have an existing loan at 3% or 4%?

Can you adjust rate on loan?

Can you refinance with new loan?

#9 – Pay investment expenses by Dec. 31

Investment counseling fees (non-registered only)

Professional accounting services

Safety deposit box rental

Interest expense

#9 – Make Debt Tax-Deductible

“Singleton Shuffle”

$300,000 $300,000

$300,000 $300,000

BANK

#9 – Make Debt Tax-Deductible (cont’d)

Lipson decision – Supreme Court (January 2009) General Anti-Avoidance Rule (GAAR) Use of attribution rules

Source: http://www.scc-csc.gc.ca/Details/d4-eng.aspCredit: Philippe Landreville, PhotographerSupreme Court of Canada Collection

#10 – Plan NOT to Get a Refund!

the euphoria of getting a tax refund that lasts only until you realize it was your own money to begin with…

in·tax·i·fi·ca·tion (in-täk-sə-fə-kā-shən) noun

2009 Tip #10 – Plan NOT to Get a Refund! (cont’d)

“Undue hardship” provision

Too much tax withheld at source

Due to:

RRSP contributions

Support payments

Childcare expenses

Charitable donations

Form T1213

#10 – Avoiding Clawback of 2010 OAS

Apply for 2010 reduction of clawback at source – OAS

Form T1213 OAS

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