Tax Planning Tips for End of 2018

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Now that we are nearing year end, it’s a good time to review your finances. 2018 saw a number of major changes to tax legislation come in force and more will apply in 2019, therefore you should consider available opportunities and planning strategies prior to year-end.

Below, we have listed some of the key areas to consider and provided you with some useful tips to make sure that you cover all of the essentials.

Key Tax Deadlines for 2018 Savings

December 31, 2018:

  • Medical expenses

  • Fees for union and professional memberships

  • Charitable gifts

  • Investment counsel fees, interest and other expenses relating to investments

  • Student loan interest payments

  • Political contributions

  • Deductible legal fees

  • Some payments for child and spousal support

  • If you reached the age of 71 in 2018, contributions to your RRSP

January 30, 2019

  • Interest on intra-family loans

  • Interest you must pay on employer loans, to reduce your taxable benefit

February 14, 2019

  • Expenses relating to personal car reimbursement to your employer

March 1, 2019

  • Contributions to provincial labour-sponsored venture capital corporations

  • Deductible contributions to a personal or spousal RRSP

Family Tax Issues

  • Check your eligibility to the Canada Child Benefit
    In order to receive the Canada Child Benefit in 2019/20, you need to file your tax returns for 2018 because the benefit is calculated using the family income from the previous year. Eligibility depends on set criteria such as your family’s income and the number and age of your children and you may qualify for full or partial amount.

  • Consider family income splitting
    The CRA offers a low interest rate on loans and it therefore makes sense to consider setting up an income splitting loan arrangements with members of your family, whereby you can potentially lock in the family loan at a low interest rate of 2% and subsequently invest the borrowed monies into a higher return investment and benefit from the lower tax status of your family member. Don’t forget to adhere to the new Tax on Split Income rules.

  • Have you sold your main residence this year?
    If so, your 2018 personal tax return must include information regarding the sale or you may lose any “principal residence” exemptions on the capital gains from the sale and thus make the sale taxable.

  • If you’re moving, think carefully about your moving date
    If you are moving to a new province, it’s worth noting that your residence at December 31, 2018 is likely to be the one that your taxes are due to for the whole of the 2018 year. Therefore, if your move is to a province with higher taxes, putting your move off until 2019 may therefore make sense, and vice versa if you are moving to a lower tax province.

Managing Your Investments

  • Use up your TFSA contribution room
     If you are able, it’s worth contributing the full $5,500 to your TFSA for 2018. You can also contribute more (up to $57,500) if you are 27 or older and haven’t made any previous TFSA contributions.

  • Check if you have investments in a corporation
    The new passive investment income rules apply to tax years from 2018 and you therefore need to plan ahead if the rules affect you. They state that the small business deduction is reduced for companies which are affected with between $50,000 and $150,000 of investment income, therefore the small business deduction has been stopped completely for corporations which earn passive investment income of more than $150,000.

  • Think about selling any investments with unrealized capital losses
     It might be worth doing this before year-end in order to apply the loss against any net capital gains achieved during the last three years. Any late trades should ideally be completed on or prior to December 21, 2018 and subsequently confirmed with your broker. Conversely, if you have investments with unrealized capital gains which are not able to be offset with capital losses, it may be worth selling them after 2018 in order to be taxed on the income the following year.

Estate and Retirement Planning

  • Make the most of your RRSP
    The deadline for making contributions to your RRSP for the year 2018 is March 1, 2019. There are three things that affect how much you may contribution towards your RRSP, as follows:

    • 18% of your previous year’s earned income

    • Up to a maximum of $26,230 for 2018 and $26,500 for 2019

    • Your pension adjustment

Remember that deducting your RRSP contribution reduces your after-tax cost of making said contribution.

  • Check when your RRSP is due to end
    You should wind-up your RRSP if you reached the age of 71 during 2018 and your final contributions should be made by December 31, 2018.

Other Considerations

  • Make your personal tax instalments
    If you pay your final 2018 personal tax instalment by December 15, 2018, you won’t pay interest or penalty charges. Similarly, if you are behind on these instalments, you should try to make “catch-up” payments by that date. You can also offset part or all of the non-deductible interest that you would have been assessed if you make early or additional instalment payments.

  • Remember the deadline for making a taxpayer-relief request
     The deadline is December 31, 2018 for making a tax-payer relief request related to the 2008 tax year.

  • Consider how to minimize the taxable benefit for your company car
     The taxable benefit applied to company cars is comprised of two parts – a stand-by charge and an operating-cost benefit. If you drive a company car, it’s worth considering how to potentially minimize both of these elements. The taxable benefit for operating costs is $0.26 per km of personal use, therefore you should make sure that you reimburse your employer where relevant, by the deadline of February 14, 2019.

Contact us if you have any questions, we can help.

New Parents

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Being a new parent can be daunting, we outline the 5 things you need to do as soon as possible and how to cover your expenses in the first year. Contact us for a complimentary review. 

What are the chances?

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Did you know?

  • Home Insurance: 1 out of 19,000 homes in Canada gets burned.
  • Auto Insurance: 1 out of 2,742 car claimed are over $3,500.
  • Optional Life Insurance: 1 out of 90 people die before age 70
  • Mental Illness: 1 out of 14 get Alzheimer’s due to over stress
  • Critical Illness Insurance: 1 out of 2.4 people gets a critical illness

How adequate is your safety net?

Estate Planning for Business Owners

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Writing an estate plan is important if you own personal assets but is all the more crucial if you also own your own business. This is due to the additional business complexities that need to be addressed, including tax issues, business succession and how to handle bigger and more complex estates. Seeking professional help from an accountant, lawyer or financial advisor is an effective way of dealing with such complexities. As a starting point, ask yourself these seven key questions and, if you answer “no” to any of them, it may highlight an area that you need to take remedial action towards. 

  • Have you made a contingency plan for what will happen to your business if you are incapacitated or die unexpectedly?
  • Have you and any co-owners of your business made a buy-sell agreement?
  • If so, is the buy-sell agreement funded by life insurance?
  • If you have decided that a family member will inherit your business when you die, have you provided other family members with assets of an equal value?
  • Have you appointed a successor to your business?
  • Are you making the most of the lifetime capital gains exemption ($835,714 in 2017) on your shares of the business, if you are a qualified small business?
  • Are you taking care to minimize any possible tax liability that may be payable by your estate in the event of your death?

Estate freezes 

The process of freezing the value of your business at a particular date is an increasingly common way of protecting your estate from a large capital gains tax bill if your business increases in value. To achieve this, usually the shares in the business that have the highest growth potential are redistributed to others, often your children, meaning that they will be liable for the tax on any increase in their value in the future. In exchange, you will receive new shares allowing you to maintain control of the business with a key difference – the value of the shares is frozen so that your tax liability is lower and that of your estate when you die will also be reduced. 

How to Make the Best of Inheritance Planning

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How to Make the Best of Inheritance Planning

Inheriting an unexpected, or even an anticipated, lump sum can fill you with mixed emotions – if your emotional attachment to the individual who has passed away was strong then you are likely to be grieving and the thought of how to handle your new-found wealth can be overwhelming and confusing but also exciting. One of the best pieces of advice in this situation is to give yourself some time before making any binding financial decisions. The temptation to quickly put the money to so-called ‘good use’ or to rush out and spend it can be strong but you must allow the news to sink in and also take some time to consider your options before you embark on the process of dealing with the inheritance. In the short term, put the money away in a high interest savings account and take time to research and think carefully about your financial goals and objectives and how this inheritance can help you to secure and maximise your financial future in the best way.

Although there is no one-size-fits-all approach to dealing with larger sums of money, here are some useful ideas of where to start.

Reduce your debt burden

If you have significant or high-interest debts, one of the safest options of all is paying this debt down. Not only will you achieve a guaranteed after-tax rate of return of your current interest rate, it can also add to your feeling of financial security and potentially offer you a more consistent financial picture. Debt often carries with it a significant interest rate – particularly on credit cards and overdrafts for example – so in many cases, eliminating this burden should be considered as one of your main priorities.

However, you may like to take careful note of the option below regarding investing the money instead as much depends on the prevailing interest rates and, of course, your appetite for risk, as you may well find an investment option with a potentially higher return more attractive.

Make investments

A particularly effective way of investing an inheritance is to add it to your retirement savings – especially if your nest egg is not looking quite as healthy as it should due to missed savings years for example. Those with lower or less reliable incomes should look upon this option as a great choice in particular.

Be charitable

After considering your own future financial needs, giving some of your wealth away to either charities or to family and friends is a good option to share out some of your inheritance to those who could benefit from it. What’s more, donating to charity can also offer you some tax breaks which may reduce your overall tax burden.

Many individuals see this philanthropic route as offering them the opportunity to do something meaningful and rewarding with their wealth and contributing towards their own sense of moral duty and emotional wellbeing.

Make a spending plan

Of course, you are likely to be keen to spend some of your wealth on yourself and your family, particularly if your financial situation means that you have previously had to be more careful and prudent with money than you would have liked. A great way to do this is to create a spending plan so that you can enjoy the benefits of spending, without it significantly eating into money set aside for your financial planning goals. You could, perhaps, aim to set aside 10% of the inheritance just for yourself and loved ones to enjoy. The proportion will naturally depend on your circumstances but, in principle, it’s a great idea as it allows you to balance sensible saving and investments with some short-term enjoyment of your wealth.

Talk to us, we can help.