Well, it is officially November, which means that the weather is changing and you are probably thinking about travelling to a beach somewhere. November also means that you should start to think about things that need to be completed before the year is over or early next year.

Several deadlines that come to mind for the end of December include Tax Loss Selling, Charitable Donations, and Conversions from an RRSP into a RRIF for anyone born in 1950.

Tax Loss Selling is the opportunity to sell any investments in a Non-Registered account that are currently at a loss. These losses can be used to offset any taxable capital gains in any of the three preceding years, the current year, or they can be carried forward indefinitely. The settlement of selling the investment must take place before December 31 so, if the stock is publicly traded then, you must place the sale order no later than December 29. There are special rules called “Superficial Loss” rules for buying the investments back so an easy rule to follow is to wait 30 days before buying the security back to avoid the risk of the capital loss being denied by CRA.

Charitable Donations allow you to receive federal and provincial tax credits that can result in large tax savings. The first $200 that is donated is given a small tax credit and then the remaining amount of the donation is given a higher tax credit. In B.C., if you were to donate $1,000 in 2021 then you can potentially get a combined federal and provincial tax credit of $406. The last day to receive credit for 2021 donations is December 31 but donations can also be carried forward for up to 5 years.

If you were born in 1950 then you must convert all registered investment accounts. This means that all of your Registered Retirement Savings Plans (RRSPs) and Locked-In Retirement Accounts (LIRAs) must be converted into Registered Retirement Income Funds & Life Income Funds, respectively. At a minimum, you will be required to take 5.28% of the value of these accounts on December 31 as income in 2022. For example, if your RRSP was converted into a RRIF and it had a value of $100,000 on December 31, 2021 then at some point in 2022 you would be required to withdraw $5,280. This income is 100% taxable in the year that it is received. **If you have already turned 71 this year (or will be turning 71 before December 31) then you are still eligible to contribute to your RRSP for the 2021 tax year but you must complete the contribution prior to year end.

New Year, Same Reminders

January 1 marks a new tax year but it should also mark some of the usual reminders for you too. A new year means another annual top up for Tax Free Savings Accounts, Registered Education Savings Plans, and Registered Disability Savings Plans.

The Government has not officially come out with their Tax Free Savings Account contribution limit for 2021 but it shouldn’t be too long before they make their announcement. If you were over the age of 18 in 2009 then you have accrued a total TFSA contribution limit of $75,500 up to the year 2021, which was an additional $6,000. If CRA announces that 2022 will have a contribution amount of $6,000 then it will bring the total allowable accrued TFSA contribution limit to $81,500 but there is a potential that they may increase the 2022 contribution limit to $6,500 due to the annual inflation adjustment that they factor in. Tax Free Savings Accounts are one of CRA’s greatest gifts to Canadians as it allows you to invest and shield all capital gains from tax but, in terms of estate planning, it also allows you to pass money to your heirs without being subject to probate or tax.

Registered Education Savings Plans have an annual limit of $2,500 that you can contribute per beneficiary. This would result in an automatic Canadian Education Savings Grant of $500. There is the potential of making up for previous years that may have been missed and I have included a link to my RESP article that goes into this in greater detail.

Registered Disability Savings Plans are a fantastic way to help a Canadian family member that has disabilities save for their future. This type of account allows the beneficiary to defer all accrued tax until a withdrawal is made. The Canadian Government also has grants and bonds that can be utilized. Under the Canada Disability Savings Grant, depending on the beneficiary’s adjusted family net income and the amount contributed, the Government will match contributions by 100% – 300% of the amount contributed, up to a maximum of $3,500 in one year and up to $70,000 over the beneficiary’s lifetime. The Canada Disability Savings Bond is meant to assist low-income Canadians with disabilities and will pay a bond up to $1,000 a year, up to a lifetime bond limit of $20,000. No contributions are required for the CDSB.

Want to chat about it? Email me at info@financerx.ca