December 31 is coming fast and as you all know December 31 is the end date of the 2019 taxation year for individual and most of the self-employed businesses. I have prepared a list of tips that can be used to reduce the 2013 income taxes.
Moving within Canada
If you have plan to move to a different province, make sure you verify the provincial taxable rate. If it is higher over there, then you can postpone the transition till after the year end, otherwise, you can do it before the year-end.
Donate securities to charity
If you donate securities to charity before year-end, you’ll save more tax by donating securities that have appreciated in value than donating cash or selling the securities to donate cash. The capital gains that arise from the donation of the securities (generated by the sale of securities) is deemed to be zero, and you’ll receive a donation tax credit. On the other hand, if you sell the securities and donate the cash, you will receive the donation tax credit but at the same time you will be subject to capital gain taxes.
If you have securities with capital losses, you can donate the securities as well; you’ll be entitled to claim the capital loss and a donation tax credit for the value.
Sell securities to create the capital losses
Be aware of superficial losses rule when implementing this strategy.
Give to charity
If you fit in the above criteria and you plan to donate, you will get a higher tax credits.
Registered Retirement Savings Plan (RRSP)
The contribution will be used to reduce your taxable income and hence you will end up paying less tax in 2013. Make sure you do not over contribute. Your RRSP contribution limit is available in your most recent notice of assessment or reassessment from the CRA.
Tax Free Savings Account (TFSA)
If you’re planning to take money out of your TFSA sometimes in 2014, consider withdrawing them before December 31, 2013. Those amounts withdrawn before Dec 31 are not added to your TFSA contribution room until Jan 1, 2014. Eg. If you withdraw say $10,000 on or before Dec 31, you could put back that $10,000 as early as Jan 1, 2014. However if you withdraw the $10,000 in Jan 1, 2014, you won’t be able to recontribute until as early as Jan 1, 2015. If you do recontribute that amount in 2014, you will be subject to penalty fees.
Registered Education Saving Plan (RESP)
Don’t forget to open a RESP account for your child(ren). Government will contribute 20% maximum $500 each year until it reaches the limit. If you already have one, you can contribute till Dec 31 in order to get the 2013 government grant. If you contribute in 2014, the 2013 government grant will not be received; instead you will receive the 2014 grant.
Buying a home
If you are eligible for the first time home buyer, then complete the purchase by Dec 31 to get the first time home buyers tax credit when you file your taxes in 2013 (if you have taxes to pay, the taxes will be reduced by $750). However if you do not have taxes to pay in 2013 and believe that you will have taxes to payable in 2014, then you can delay the completion date till 2014.
If you or your spouse is SELF EMPLOYED/PROPRIETOR/CONTRACTOR
In addition to the above tips;
Hire your spouse or child in your business.
This can be an income splitting tool and will reduce your family total tax bill.
Buy assets to increase the Capital Cost Allowance claim
Instead of delaying the purchase of necessary equipment, machine, vehicle, technology or any assets to next year, you can purchase them by Dec 31. Keep in mind that you do not have to pay by Dec 31.This purchase will increase your capital cost allowance (“CCA”) and hence will reduce your taxable income and ultimately less taxes if you have to pay.
Delay on the sale of depreciable assets
If you want to sell any depreciable assets (similar to those mentioned above) before Dec 31, then postpone it if you can to at the earliest Jan 1, 2014. By postponing the disposition, you will not reduce the CCA hence will not increase the taxable income.
Closing down your business
Instead of closing down your business before the end December 31, wait until next year, so the remaining portion of your calendar year won’t be taxed until the following year.
Changes for 2013:
THERE ARE MORE TIPS AVAILABLE DEPENDING ON YOUR SITUATION. Please contact me for more details.
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