“The wisdom of the prudent is to give thought to their ways.” ‐ Proverbs 14:8 (NIV)
By Arnold Machel, CFP®
Can you believe that the end of 2016 is almost upon us already? Year end brings with it a close to the year and also a few deadlines that must be kept. Sure, you have until April 10th of the following year to file your taxes and up to 60 days after the end of the year to make your deadline for RRSP contributions, but it’s at year end that most tax deadlines apply, so now is the perfect time to make sure that we’ve done everything that we can to minimize our taxes for the current year.
Below is a list of key items I recommend that you take a quick look at (and take action on if applicable) in the next couple of weeks to make sure that you can enjoy the Christmas season and still meet any necessary deadlines.
1. Tax Loss Selling – consider selling investments that have gone down in value to offset capital gains triggered throughout the year. Capital losses can be carried back 3 years and carried forward indefinitely. If planning to re‐purchase the investments, beware of superficial loss rules that invalidate your losses if securities are re‐purchased in your or your spouse’s accounts within 30 days.
2. Donate to charity – donations must be made by December 31 to get a tax receipt for 2016. Here in BC (for most people) that receipt is worth 43.7% of the gift (assuming that you’ve already given at least $200 in the year). In other words, a $1,000 gift will save you $437. If gifting a publicly listed security in‐kind, act early as these transactions can take weeks to complete. Gifting a publicly listed security (including mutual funds) with accrued capital gains to a registered charity will provide the donor with not only a tax receipt for the gift, but also eliminates the capital gains tax.
3. Convert RRSPs to RRIFs or annuities if you turned 71 this year – RRSP conversions must occur by the end of the year in which you turn 71.
4. Over‐contribution to your RRSP ‐ a one‐time over‐contribution to your RRSP may make sense if you turned 71 this year and had a high income, in spite of the one‐month penalty that you would face.
5. Registered Education Savings Plan (RESP) contributions – while you may be able to catch up on past years in some circumstances, it is better to stay caught up and maximize contributions to the plans as you are able. Contributions are encouraged by a 20 – 40% matching program. Plans can be set up by anyone, but are generally created by parents and grand‐parents. Make sure that you or your advisor has applied for the new BC Training and Education grant if you have an eligible child.
6. Registered Disability Saving Plan (RDSP) contributions – similar to RESPs you may be able to catch up on past years in some circumstances, however it is better to stay caught up and maximize contributions to the plans as you are able. Contributions are encouraged by hugely generous government matching (either 1:1 to 3:1) and up to $1,000 in additional bond monies that in aggregate often result in an additional annual $4,500 in government money if the donor puts in the first $1,500 annually…. so a $1,500 contribution can become $6,000 after the government contributions in many cases. And if you are eligible for catch up contributions, it could be even much more than that, at least initially.
7. Review your asset allocation – year end is a good time to review your asset allocation. Has anything happened in the past year that would make you want to adjust your allocation to equities? In the long run it’s your asset allocation that will have the greatest impact by far on your return and it’s also what will determine how well you sleep at night when things go south. When done in conjunction with tax loss selling, this can be a powerful tool.
8. Rebalance – if not changing your asset allocation, consider rebalancing to your established asset allocation. Rebalancing is one of the few “free lunches” we get as investors as it both lowers risk and increases returns at the same time. Do so in coordination with tax loss selling for the best bang for your buck.
9. TFSA withdrawal – since withdrawals from a TFSA do not increase contribution room until the following year, December is the best month to take withdrawals, but only if you need them.
10. Business owners – paying taxes later is always better than paying them sooner. Consider purchasing extra inventory or other items in December to increase 2016 expenses and delay billing for a few days/weeks in order to push income into 2017 if you are able.
Tax planning should not all be done in the final month of the year. While the deadline may be the end of the year for much of it, tax planning should be done on a continuous basis and considering multiple years. Some of the items above are quite technical and should not be done without professional help, but others you can easily do on your own. Also look at each of the items above and see if there are ways that you can automate them so that you aren’t scrambling at year end to get them done. Consider automatic contributions to accounts or arrange for auto re‐balancing of your portfolios. See if there are things that you should consider doing earlier in the year next year, or items that you should plan out for future years. Wishing you all the very best for this Christmas! May God richly bless and reward you for your faithfulness.
Arnold Machel, CFP® lives, works and worships in the White Rock/South Surrey area. He attends Gracepoint Community Church where he serves on the Leadership Team. He is a Certified Financial Planner with IPC Investment Corporation and Visionvest Financial Planning & Services. Questions and comments can be directed to him at dr.rrsp@visionvest.ca or through his website at www.visionvest.ca.
Please note that all comments are of a general nature and should not be relied upon as individual advice. While every attempt is made to ensure accuracy, facts and figures are not guaranteed.