Last-minute tax checklist for investors

If your glass is half empty, investors who don’t heed the April 30 tax deadline could risk having their gains wiped out by the tax man.

If your glass is half full, investors could boost returns by acting before the April 30 deadline.

Here are a few basic tax warnings and advantages for the average investor:

RRSP off the top

You can deduct any registered retirement saving plan contributions (RRSP) made to your account or a spousal account between March 1st of this year and Feb. 29 of 2012, or contributions from previous years that have not yet been deducted.

The amount contributed is subtracted directly from taxable income. If you are in a higher tax bracket, that could result in a refund of up to 29 per cent on the federal level alone. Provincial savings depend on the tax rate of the province.

If you are filing electronically be sure to keep your contribution receipts in a safe place in the event you are ever audited by the Canada Revenue Agency.

The contribution limit for the 2012 tax year is 18 per cent of the previous year’s income up to $22,970, but amounts below the limit in previous years can be carried forward. Also, any contribution over the limit in 2012 can be carried forward to future years.

You can find your limit on the statement sent to you by the CRA following the previous year’s tax return. Remember, an over contribution could result in a penalty.

And don’t forget, funds from an RRSP are fully taxed when withdrawn.

TFSA gains are all yours

Contributions to a Tax Free Savings Account (TFSA) can not be deducted. However, any gains on the investments in a TFSA can be your little secret. CRA can’t get its hands on them.

With the total contribution limit now at $25,500 and a promise from Ottawa of regular $5,000 increases, the TFSA is coming into its own as a tax-fighting force.

Keep in mind that over contributions can also result in a penalty.

Also, if you withdraw funds and replace them in the same calendar year it counts as an additional contribution.

Capital gains are yours – sort of

Half of all gains on equities or equity funds, known as capital gains, acquired outside of an RRSP or TFSA must be claimed in the year they are sold.

As the TFSA contribution limit grows, the capital gains tax is becoming less of an issue for the average investor and more of a concern for wealthy investors who have maxed out their registered accounts.

Still, investors who have stocks or equity funds outside of registered accounts and want to transfer them to an RRSP or TFSA must sell them first and pay the capital gains tax.

One upside to the capital gains tax is the capital loss deduction, which allows losses to offset gains going back three years or going forward indefinitely.

Other unregistered investment taxes

Income generated from investments like bonds or interest on savings must be claimed in full, and that’s why it’s best to give them priority in an RRSP or TFSA.

Dividend payments from stocks held outside a registered account must also be claimed but most Canadian stocks are eligible for a dividend tax credit from both the Federal government and individual provinces. The process for calculating the credit is complicated so you should use a good tax software program or speak with a tax professional.

Finally, interest paid on loans to make investments can be deducted provided the loans were not taken out to contribute to an RRSP or TFSA.