Twelve days of tax tips: Ernst & Young’s festive guide to year-end savings
(Toronto, 13 December, 2012) The holiday season is in full swing. With hosting and gift-giving making wallets a little lighter this time of year, Ernst & Young has come up with the following tips to help Canadians stock up on some savings — just in time for the new year.
- On the first day, contribute to a tax-free savings account (TSFA). Make your $5,000 TFSA contributions for 2012, and if you haven’t contributed before, contribute up to $20,000 before the end of the year. Consider making your 2013 TFSA contribution in early January 2013. The limit has been increased to $ 5,500 for 2013.
- On the second day, contribute to education. Don’t forget to make registered education savings plan contributions before the end of the year for your child or grandchild. With a contribution of $2,500 per child under age 18, the federal government will contribute a grant of $500, and if you have prior non-contributory years, the annual grant can be as much as $1,000.
- On the third day, put money into a registered retirement savings plan (RRSP). The deadline for making deductible 2012 RRSP contributions is 1 March 2013. The earlier you contribute, the more time your investments have to grow, so consider making your 2013 contribution in January 2013 to maximize the tax-deferred growth.
- On the fourth day, if you are 71 in 2012, make your final RRSP contribution no later than December 31 (not 60 days after the end of the year), and an RRSP maturity option must be selected by the end of the year.
- On the fifth day, pay tax-deductible or tax-creditable expenses before year end. A variety of expenses can only be claimed as deductions in a tax return if the amounts are paid by the end of the calendar year, including interest, investment counsel/management fees, safety deposit box fees, professional dues, spousal support and child-care costs. Charitable donations, political contributions, medical expenses, child fitness and arts program costs, tuition fees and transit pass costs that give rise to tax credits must also be paid before 2013.
- On the sixth day, reduce or eliminate non-deductible interest. Interest on funds borrowed for personal purposes is not deductible. Where possible, consider using available cash to repay personal debt before repaying loans for investment or business purposes on which interest may be deductible.
- On the seventh day, reduce automobile taxable benefit. If you’re an employee who uses an employer-provided car primarily for business, you may be eligible for a reduced standby charge and a lower alternate operating benefit, computed as one-half of the standby charge.
- On the eighth day, request reduced source deductions. If you receive tax refunds because of deductible RRSP contributions, child-care costs or spousal support payments, consider requesting Canada Revenue Agency authorization to allow your employer to reduce tax withheld from your salary for 2013.
- On the ninth day, consider income-splitting loans. The prescribed interest rate applicable to the exemption from income attribution on intra-family loans is still 1% for the final quarter of 2012. That means income-splitting loans are still an excellent tax-saving opportunity for those who have liquid or certain other assets, and are interested in income splitting with spouses/partners and/or children or grandchildren.
- On the tenth day, review your investment portfolio. You may want to sell loss securities to reduce capital gains realized earlier in the year. If the losses realized exceed gains realized earlier in the year, they can be carried back and claimed against net gains in the preceding three years, and you should receive the related tax refund.
- On the eleventh day, make capital acquisitions for business. Self-employed individuals and unincorporated business owners expecting to make capital purchases for their business should consider buying before year end to get a depreciation deduction for 2012.
- On the twelfth day, if you're a business owner thinking about increasing your salaries or dividends, consider doing it before year end if you’re a Quebec or Ontario resident. In those provinces, a new personal income tax bracket was introduced this year. The new bracket is applicable for 2013 and subsequent taxation years. Business owners can save tax in salaries and dividends, and investors can benefit from lower tax rate on capital gain if transactions are made before December 31.
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