Question: Using a software package, I file my own taxes each year without the help of an accountant or other tax professional. I’m wondering if you have any advice for me, and if you can give me any tips? I’d like to make sure I’m being smart about taxes and taking advantage of any year end tax-saving strategies available to me.
Answer: The deadline for filing 2018 taxes is still several months away–April 30th, 2019 for most Canadians, and June 15th, 2019 for individuals who have self-employment income (although the due date for any balance owing is still April 30th, 2019).
Note, however, that although the deadline for filing your taxes is several months away, the 2018 year end is only weeks away, and many tax-related strategies have to be implemented before December 31st, 2018 in order to effective for the 2018 tax year.
With that in mind, let’s take a look at some potential year end tax saving tips and strategies.
First and foremost, there are no tax consequences of capital gains and losses in TFSAs, RRSPs, or other registered accounts, so this strategy is applicable only in taxable (non-registered) accounts. Tax-loss selling is based on the fact that, in non-registered accounts, capital losses can be used to offset capital gains. This strategy provides you with an opportunity to make good use of losses – by using them to neutralize taxes owing on other transactions where capital gains have been generated. If you have capital losses, but no capital gains, you can “harvest” the losses. That is, your capital losses can be carried backward up to three years, or carried forward indefinitely. However, be careful you don’t let tax be the sole consideration for your investment decisions. Note that the deadline for tax-loss selling for the 2018 calendar year is December 27, 2018. That is, trades would have to be executed on or before that day, for any losses (or gains) to be attributable to the 2018 calendar year. For a more thorough discussion on tax-loss selling, please see our blog post here.
If you have a child under the age of 18, and you’re planning to contribute to an RESP, make your contribution before December 31st. By doing so, you’ll be able to receive the Canada Education Savings Grant (CESG) for 2018. Remember, the first $2,500 of annual RESP contribution is eligible for a 20 percent CESG matching contribution. CESG is limited to a maximum of $500 CESG per child, per year, and a $7,200 lifetime limit per child. Although there is a carry-forward provision available for unused years, it’s generally advantageous to contribute at least $2,500 each year to ensure you receive the maximum CESG matching contribution.
Deductible medical expenses incurred and paid before December 31st can be claimed on your 2018 tax return. For married and common law couples, the total medical expenses incurred for both spouses or partners can be combined and claimed on one tax return. This, of course, raises the question – on which spouse’s tax return should the expenses be claimed? It’s generally better for the lower income spouse to claim those expenses. This is because the lower of $2,302 (2018) and 3% of net income is deducted from your medical expenses to determine the tax credit amount.
While donations to registered charities are generally eligible for a tax credit, making donations with shares can be even more attractive. If you plan to make a donation this year, and have shares that have appreciated in value, consider donating shares instead of cash. Since 2006, capital gains on publicly traded securities are not taxable when those securities are donated to registered charities. The charity receives the full value of your donation, and you pay no taxes whatsoever on the capital gain. Note, however, that capital losses are denied on in-kind contributions. So, if you’re donating shares to a registered charity, make sure you donate shares that have increased, not decreased, in value. The annual limit on charitable donations is currently 75% of your net income (extended to 100% in the year of death and year prior).
Self-employed and small business owners
If you are a small business owner, or otherwise self-employed, you may want to consider incurring business expenses before year end (if your business year end is December 31st). By doing so, qualifying expenses can be deducted in the current year. Furthermore, if your business is incorporated, and your corporate income is close to the small business deduction (SBD) threshold, consider paying yourself a bonus prior to year-end. By doing so, can you reduce income in your corporation to make sure it stays below the SBD threshold. The current federal limit is $500,000, and provinces also have a small business rate which varies from one province to the next.
RRSP contributions made in the first 60 days of 2019 can be attributed to either 2018 or 2019–it’s entirely your choice. Therefore, the 2018 deadline for RRSP contributions is actually March 1, 2019. However, waiting until the last minute to make your RRSP contribution means missing out on a full year of tax-free growth. If you haven’t done so already, consider setting up a regular monthly contribution to your RRSP, so you’re not scrambling to come up with the funds to make a last minute contribution.
Common Non-Refundable Federal Tax Credits Available in 2018
This list is not exhaustive, and, depending on your own personal circumstances, other credits may also be available. Furthermore, please note that some tax credits have additional caveats and income thresholds.
- Basic personal amount: $11,809 – Every individual who is a resident of Canada can claim this amount
- Age amount: $7,333 – Available to those who will be 65 or older on December 31, 2018, with net income less than $36,976. Income between $36,976 and $85,863 results in a partial claim.
- Pension income amount: $2,000 – Available to those receiving regular pension payments from a pension plan or fund (excluding CPP, QPP, OAS, or GIS) may claim the lesser of $2,000 or annual pension received
- Spouse or common-law partner amount: $11,809 – Available to those who support a spouse or common-law partner with no income. Income between $1 and $11,809 results in a partial claim.
- Tuition amount (full-time and part-time students) – Individuals may claim the total amount of tuition fees paid at a qualifying institution
- Disability amount: $8,235 – Available only to those who qualify for the Disability Tax Credit (DTC).
For more information, please see the 2018 Personal Tax Credits Return from the CRA.