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Year-end moves to maximize your tax rebate

Dale Jackson
The Canada Revenue Agency headquarters in Ottawa is shown on Friday, November 4, 2011. THE CANADIAN PRESS/Sean Kilpatrick

CIBC is putting a new twist on tax loss selling for investors this year – a sort of tax gain selling.

Tax loss selling is a strategy where investors sell money-losing equities before the end of the year. Those losses are used to cancel out taxable gains made on equity investments over the previous three years, or they can be banked up to wipe out taxes on gains going forward indefinitely.

But in a note to clients CIBC is suggesting investors in Ontario and Quebec should even consider selling equities that have gained in 2012 to avoid higher tax rates slated for 2013. They say if you’re going to pay the 50 per cent capital gains tax you might as well do it now at a lower rate.

(It’s important to note that a trade takes three business days to settle so the last business day for tax loss selling is Dec. 24 for Canadian stocks and Dec. 26 for U.S. stocks.)

Inversely, CIBC says it might be wise for some investors in Ontario and Quebec to consider deferring tax deductions to 2013 for things such as business expenses, legal fees, investment fees and investment loan interest. Claiming those deductions under a higher tax rate will result in bigger tax savings.

Year-end RRSP issues

Tax loss selling or capital gains do not apply to registered accounts like tax free savings accounts (TFSA) or registered retirement savings plans (RRSP). One benefit from an RRSP is the ability to deduct the contribution from your taxable income. CIBC even suggests holding off on claiming some of that deduction in 2012 and carrying it over into next year to get a bigger rebate when taxes rise.

No hurry, though - the deadline to deduct RRSP contributions from your 2012 income tax doesn’t come until March 1 unless the contributor turned 71 years old in 2012 (in which case the deadline is Dec. 31). However, according Stewart & Kett Financial Advisors a younger spouse has until March 1 to top it up through a spousal RRSP if the deadline is missed.

TFSA contributions

There is no deadline for making a TFSA contribution but the Federal government has boosted this year’s limit an extra $500 to $5,500 thanks to a cost of living increase.

Overall, individuals can contribute a maximum of $25,500 into just about anything, and any gains will not be taxed.

Gifting investments

‘Tis the season for giving and investors can help a registered charity by transferring stocks, bonds, or any other security. If the stock has appreciated in value the investor can avoid paying the capital gains tax.

Shares can be transferred electronically from the brokerage account of the investor to the account of a registered charity. If the shares are in the form of a physical certificate the owner must endorse the stock by signing it in the presence of a guarantor, such as a bank or broker.

There are websites including that deal exclusively in transferring stocks to registered charities.

Reach out to CRA before the rush

The deadline for filing your 2012 tax return does not come until spring but investors can get an edge by making a New Year’s resolution to get a jump on tax season.

One of the greatest resources available to investors is the Canada Revenue Agency through its website search engine, or direct help by phone or through email.

Unfortunately, most taxpayers wait until the last minute to take advantage of the services they help pay for, and the line-up for help is long.

Try contacting a CRA advisor in early January with any questions – they may be bored.