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Year End Tax Tips

Dear Clients & Friends,

2020 was a challenging year for many people and companies. Most of the Covid-19 measures introduced by the government are taxable and will be included in your income for 2020. Taxpayers who collected the Canada Emergency Response Benefit (CERB), could see a total of up to $14,000 included in his/or income, taxed at the individual’s marginal rate. Since CERB was not subject to any source deductions, taxpayers may wish to plan for this in advance. If you happen to receive a letter from CRA asking for any part of your benefits to be repaid, please contact us as alternate solutions may exist and we would be happy to help.

For general year-end tax planning, consider selling portfolio investments with tax losses. Capital losses can be used to offset any realized capital gains. They cannot be applied against ordinary income. However, net capital losses can also be carried back three calendar years or carried forward indefinitely.

Another creative tax planning tool is income splitting with spouses who are in a significantly lower tax bracket with the use of “spousal loans”. These have to be carefully structured and reported, so make sure to get professional advice before executing. The tax benefits for the family can be quite significant.

Business tax planning is also an important consideration. Effective 2019, new tax rules now impact certain corporate groups with passive investment income; as well as dividends paid to family members. Careful planning and consideration should be made when deciding between paying family members salaries versus dividends.

A traditional tax planning consideration is to maximize your RRSP (or a spousal RRSP) contribution. The maximum limit for 2020 is $27,230 and is due no later than 60 days following the calendar year-end in order to be deductible against your 2020 income. Taxpayers who turned 71 in 2020 have only until December 31, 2020, to make a final contribution to their RRSPs before converting it to a RRIF or annuity.

A TFSA contribution is not tax-deductible, but you can benefit from tax-free growth, similar to an RRSP. The 2020 contribution limit is $6000. If you have never contributed in the past, you can contribute up to $69,500 (for taxpayers age 18 and over).

Consider making charitable donations prior to December 31st to receive a tax credit for 2020. By donating publicly traded securities with accrued capital gains, you will receive a donation receipt for the full fair market value of the stock, but will not have to pay the associated capital gains tax. You get more “bang for the buck” by donating public company stock.

If you would like to discuss your year-end tax planning; or if you would like help with your CEWS or CERS applications, please feel free to contact us.

Wishing all of you a happy and healthy 2021!

Your HS Team