YEAR-END TAX PLANNING
December 31, 2019 is fast approaching… see below for a list of tax planning considerations. Please contact us for further details or to discuss whether these may apply to your tax situation.
SOME 2019 YEAR-END TAX PLANNING TIPS INCLUDE:
1. Keep Track of Eligible Expenditures
Certain expenditures made by individuals by December 31, 2019 will be eligible for 2019 tax deductions or credits including: moving expenses, child care expenses, charitable donations, political contributions, medical expenses, alimony, eligible employment expenses, union, professional, or like dues, carrying charges and interest expense. Ensure you keep all receipts that may relate to these expenses.
2. Pay Salaries to Family Members
If you own a business or rental property, consider paying a reasonable salary to family members for services rendered. Examples of services include website maintenance, administrative support, and janitorial services. Salary payments require source deductions (such as CPP, EI and payroll taxes) to be remitted to CRA on a timely basis, in addition to T4 filings.
3. Make Capital Asset Purchases
If you own a business or rental property, also consider making a capital asset purchase by the end of the year. Most capital assets purchased in 2019 will be eligible for accelerated depreciation (generally three times the deduction to which they would normally be entitled in the first year). For example, a piece of equipment normally eligible for a 10% deduction in the first year (Class 8), would be entitled to a 30% deduction. This benefit is available even if purchased and made available for use just before year-end.
Further, purchases of machinery and equipment used for the manufacturing or processing of goods for sale or lease (such as an oven in a restaurant) may be eligible for a 100% write-off. Likewise, some zero-emission electric vehicles may be eligible for a 100% write-off (limited in some cases to the first $55,000). Alternatively, zero-emission vehicles purchased on or after May 1, 2019 may be eligible for a federal incentive rebate of up to $5,000.
4. Limit Senior Income for Old Age Security Pension
A senior whose 2019 net income exceeds $77,580 will lose all, or part, of their Old Age Security pension. Senior citizens will also begin to lose their age credit if their net income exceeds $37,790. Consider limiting income in excess of these amounts if possible. Another option would be to defer receiving Old Age Security receipts (for up to 60 months) if it would otherwise be eroded due to high income levels.
5. Make RRSP Contributions
You have until Monday, March 2, 2020 to make tax deductible Registered Retirement Savings Plan (RRSP) contributions for the 2019 year. Consider the higher income earning individual contributing to their spouse’s RRSP via a “spousal RRSP” for greater tax savings.
6. Catch-up Contributions to Tax-Free Savings Accounts
Individuals 18 years of age and older may deposit up to $6,000 into a Tax-Free Savings Account in 2019. Consider a catch-up contribution if you have not contributed the maximum amounts for prior years. An individual’s contribution room can be found online on CRA’s My Account.
7. Consider Your Registered Education Savings Plan
A Canada Education Savings Grant for Registered Education Savings Plan (RESP) contributions equal to 20% of annual contributions for children (maximum $500 per child per year) is available. In addition, lower income families may be eligible to receive a Canada Learning Bond.
8. Consider a Registered Disability Savings Plan
A Registered Disability Savings Plan (RDSP) may be established for a person who is under the age of 60 and eligible for the Disability Tax Credit. Non-deductible contributions to a lifetime maximum of $200,000 are permitted. Grants, Bonds and investment income earned in the plan are included in the beneficiary’s income when paid out of the RDSP.
9. Sell Non-Registered Securities
Consideration may be given to selling non-registered securities, such as a stock, mutual fund, or exchange traded fund, that has declined in value since it was bought to trigger a capital loss which can be used to offset capital gains in the year. Anti-avoidance rules may apply when selling and buying the same security.
10. Restructure Your Investment Portfolio
Consider restructuring your investment portfolio to convert non-deductible interest into deductible interest. It may also be possible to convert personal interest expense, such as interest on a house mortgage or personal vehicle, into deductible interest.
11. Split Canada Pension Plan Receipts
Canada Pension Plan (CPP) receipts may be split between spouses aged 65 or over (application to CRA is required). Also, it may be advantageous to apply to receive CPP early (age 60-65) or late (age 65-70).
12. Tax Credit for Teachers and Early Childhood Educators
Teacher and early childhood educators – A federal refundable tax credit of 15% on purchases of up to $1,000 of eligible school supplies by a teacher or early childhood educator used in the performance of their employment duties may be available. Receipts for school supplies as well as certification from employer will be required.
13. Home Accessibility Tax Credit
Home accessibility tax credit – A federal non-refundable tax credit of 15% on up to $10,000 of eligible expenditures (renovations to a qualified dwelling to enhance mobility or reduce the risk of harm) may be available each calendar year, if a person 65 years or older, or a person eligible for the disability tax credit, resides in the home.
14. Changes to Allowed Medical Expenses
Did you incur costs to access medical intervention required in order to conceive a child which was not previously allowed as a medical expense? Certain expenses for the previous 10 years may now be eligible (amounts incurred in 2009 must be claimed by the end of 2019).
15. EI Premium Errors
If EI premiums were paid in error in respect of certain non-arm’s length employees, a refund may be available upon application to CRA.
16. New Canada Training Credit
The new Canada Training Credit provides another reason to file a tax return. Canadian residents that are at least 25 years of age and less than 65 years at the end of the year that have earnings (primarily income from employment or self-employment) of $10,000 or more without exceeding $147,667 in 2019 will accumulate $250 in a notional account that can be refunded when the individual enrolls in an eligible educational institution. The amount will be refunded when the individual files their personal tax return. The amount will first start to accumulate in 2019, and be available for expenses in the 2020 year.
17. Investment Tax Credit For Employers of Apprentices
Employers of eligible apprentices are entitled to an investment tax credit. Also, a $1,000 Incentive Grant per year is available for the first and second year as apprentices. A $2,000 Apprenticeship Completion Grant may also be available.
18. Voluntary Disclosures
If income, forms, or elections have been missed in the past, a Voluntary Disclosure to CRA may be available to avoid penalties.
19. U.S. Filing Obligations
Are you a U.S. Resident, Citizen or Green Card Holder? Consider U.S. filing obligations with regards to income and financial asset holdings. Filing obligations may also apply if you were born in the U.S.
Information exchange agreements have increased the flow of information between CRA and the IRS. Collection agreements enable CRA to collect amounts on behalf of the IRS.
The preceding information is for educational purposes only.