Must-make year-end tax moves

We may be approaching the most wonderful time of the year, but December is also when to make moves that could save you money come tax time.

“Most people think of tax time as April, but it’s really all year long,” says Caroline Battista, a senior tax analyst with H&R Block Canada. “You want to be keeping your receipts all year long, but there are few things you can do at this time of year that can really help you out.

“Nobody wants to pay more taxes than they really owe,” she adds. “Income tax is the one time of the year you can get some money back.”

Donate to charity

A donation up to $200 yields a 15 per cent federal tax credit and anything above that produces a 29 per cent credit. Add in provincial tax credits and you could be looking at credit between 40 and 50 percent.

“I don’t think people realize how much of an advantage charitable donations can be,” Battista says.

Then there’s the first-time donor’s super credit (http://www.cra-arc.gc.ca/nwsrm/txtps/2013/tt131216-eng.html). Introduced last year, it gives an extra 25 per cent federal tax credit to those who are giving for the first time or who haven’t claimed the charitable donation tax credit since 2007. It means you can get a 40 per cent credit for up to $200 in cash donations and a 54 per cent credit for donations between $200 and $1,000.

Another option for charitable donations is to gift publicly-traded securities or mutual funds, with accrued capital gains instead of cash.

“This not only entitles you to a tax receipt for the fair market value of the security being donated, it also eliminates capital gains tax,” says Jamie Golombek, managing director of tax and estate Planning at CIBC (https://www.cibc.com/ca/media-centre/bio/golombek.html).

Beef up RESPs

Unlike RRSP contributions that can be made in the first 60 days of 2015 for a 2014 tax credit, RESP contributions must be made by December 31.

“In the event that you haven’t maximized your RESP contributions in past years, you can catch up one year at a time,” says financial educator Jim Yih, founder of Retire Happy (http://retirehappy.ca/financial-education-in-the-workplace/). “The rules state there is no annual contribution limit to the RESP, but there is a lifetime limit of $50,000 per child. On that basis, you could contribute $5,000 to the RESP and get $1,000 of the CESG [Canada Education Savings Grant] if you’re catching up from previous years.” (The basic CESG is a payment of 20 per cent on RESP contributions.)

And take note, grandparents: “An RESP [contribution] may make the perfect Christmas gift this holiday season,” Yih says.

Consider tax loss selling

If you’re facing a big capital gain in 2014, you may want to see if you can take a loss to help offset your gain and reduce your tax liability. Any transaction needs to be settled on or before December 23 in order to qualify for your 2014 tax return, Battista says.

Tax loss selling doesn’t apply to investments inside an RRSP or Tax Free Savings Account (TFSA), Yih notes.

Get your kids moving

“It doesn’t happen very often, but the federal government not only announced an increase the Children’s Fitness Amount to $1,000 but made it retroactive for 2014,” Battista says. “A lot of people stop collecting receipts at $500 because they don’t know it’s doubled, so make sure you’re keeping receipts. You claim your receipts in the year you paid the fees so a few extra activities now could bring some tax savings when you file your return.”

Get your kids learning

Most people don’t understand what types of programs are eligible for a tax credit under the Children’s Arts Amount (http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns360-390/370/menu-eng.html). You can claim to a maximum of $500 per child fees paid for an artistic, cultural, recreational, or developmental activity.

“It’s not just art classes,” Battista says. “It could be piano lessons or Scouts or tutoring.”

To qualify, a program must meet one of these criteria: contribute to the development of creative skills or expertise in an artistic or cultural activity, provide a substantial focus on wilderness and the natural environment; help kids develop particular intellectual skills; include structured interaction among children where supervisors help children develop interpersonal skills; or provide enrichment or tutoring in academic subjects.

Use a prescribed rate loan for income-splitting

You can split your investment income with family members (such as your spouse, common-law partner, or kids) in a lower tax bracket by lending funds to them using the federal government’s prescribed rate, which is one per cent until the end of 2014.

“If you take out a loan before the end of the year, the one per cent interest rate will be locked in for the duration of the loan, regardless of future prescribed rate hikes,” Golombek says. “It’s also beneficial for couples with children under 18 to review their income-splitting options in light of the recently announced Family Tax Cut, which provides a non-refundable credit of up to $2,000.”

Convert your RRSP to a RRIF by age 71
If you turned 71 in 2014, you have until December 31 to make any final contributions to your RRSP before converting it into a Registered Retirement Investment Fund (RRIF) or registered annuity.

“It may be beneficial to make a one-time over-contribution to your RRSP in December before conversion if you have earned income in 2014 that will generate RRSP contribution room for 2015,” Golombek says. “If you have a younger spouse or partner, you may also want to consider making contributions to a spousal RRSP until the end of the year your spouse or partner turns 71.”