Yes, I know it is just October 1st – 3 months to go but now is the right time to begin your year-end tax planning. Why? Avoid the rush and decisions made in haste tend to be either wrong or not sufficient.
I will start with RRSP and Spousal RRSP plans – start adding up any contributions you have already made in 2012 – going right back to January 2012 (yes, I know you probably claimed some or all of the January, February and March 1st contributions on your 2011 tax return), but get the detailed list anyway and then get your copy of your 2011 Tax Return and Notice of Assessment (NOA) and cross off contributions that were deducted and then compare your remaining deposits to your maximum Allowable RRSP Contribution Limit from the bottom of page 2 of your NOA. Plan now to make as many deposits as you can before year-end so your top-up cheque in early 2013 doesn’t put your bank account into over-draft.
Generally, deposits to RRSPs and Spousal RRSPs should be made into accounts for the spouse with the lowest potential post-retirement income (from all sources) so you can take maximum advantage of income-splitting opportunities.
TFSAs – Tax Free Savings Accounts – these operate on a CALENDAR-year basis – there is no 60-day grace period into the next tax year – so decide on what you can comfortably afford, and get it in now and where possible, ensure contributions end up in the hands of the spouse with the lowest potential income at retirement even though withdrawals from TFSAs are tax-free.
Charitable donations may or may not be part of your life, but if you are going to make them, now is the time to get them in so you can check to make sure you get your deductible receipts – sometimes they tend to get lost in the year-end crush – no receipt, no claim. So take the time check. Tax receipts can be claimed by either spouse so it doesn’t matter in whose name the receipt is issued.
Investment income can be planned and controlled within certain limits. Check with your financial advisor or planner to determine if you are going to have reportable losses that can be used to offset some or all of your gains. No-one can estimate year-end results – particularly in the current market conditions, but you can start to get a handle on where you currently sit and then arrange to meet with your advisor no later than the first week of December to make your final decisions about triggering losses or gains!
Medical and dental expenses are another important consideration as these also operate effectively on a calendar-year basis. If you know that you are going to need prescriptions re-filled or dental work completed, make sure you get them done before year-end so that you will have the maximum allowable claim – subject to the usual threshold of 3% of earnings.
We will look at other year-end issues and opportunities over the next few weeks. Cheers!