Monthly Archives: December 2010

Anthony Sabti

Year-End Planning Tips

We are quickly nearing the end of the 2010.  Around this time of year, there are always a few financial planning matters to take care of.  Here are seven items that may come into play during this period:

1.  Capital Loss Selling (for open accounts only)

If any investment you hold has dropped in value (below your purchase price), you can sell that investment and trigger the capital loss.  The capital loss can be used to offset any capital gains realized this year, which will lower your taxes payable.  Capital losses can also be used against any capital gains realized in the past 3 years or at anytime in the future.

Keep in mind that you cannot immediately buy back the same investment.  If you trigger a capital loss and then buy back the same investment within 30 days, it is considered a “Superficial Loss”, and you are not allowed to use that capital loss. You must wait 30 days before buying the investment back.  In the case of mutual funds, there may be short-term trading fees to be aware of. 

2.  Transfers to RRSP

If you are transferring funds from your open account to your RRSP, you will either a trigger a capital gain, or capital loss.  If you are in a gain position, consider holding off on your switch until January 2011, so that you defer taxes owing by a year. 

If you are in a loss position, do not transfer directly from open to RRSP as that loss will be disallowed to offset capital gains.  In order to truly “capture” the loss, you must first sell the investment in your open account (in the context of mutual funds, you could switch your units to a money market fund), and then switch to RRSP. 

3.  Purchasing Mutual Funds at Year End

If you are considering a mutual fund purchase this time of year, it may be best to wait until early 2011.  Mutual funds make their distribution on December 31st, 2010, and are taxable for 2010.  If you purchase a fund that makes a distribution this year, you may end up paying taxes on a fund you’ve only held for a few days.

4.  RRSP and turning 71

If you have an RRSP and you are turning 71 in 2010, you cannot hold the RRSP beyond the end of the year.  The most common option is to convert your RRSP into a RRIF (Registered Retirement Income Fund), which are subject to minimum annual withdrawal percentages. 

5.  Tax-Free Savings Accounts (TFSA)

Any withdrawals you make from a TFSA will increase your ongoing contribution room by that withdrawal amount.  However, the increased contribution room does not take effect until the following year.  For example, if you have 10k in a TFSA and withdraw 3k in 2010, you cannot re-contribute that 3k until 2011. 

TFSA over-contribution penalties are pretty costly, so it’s important not to “re-contribute” your withdrawals in the same year.

6.  Registered Education Savings Plan (RESP)

The federal government provides a Canada Education Savings Grant (CESG) consisting of 20% of your RESP contribution.  There are annual maximums for how much CESG you can receive: $500 for the current year plus another $500 if you have unused CESG room from previous years.  In order to receive your CESG for 2010, you must make you contribution before December 31st, 2010. 

Also, if you have an RESP account and your child (the account’s beneficiary) is turning 17 in 2010, this will be the final year he/she is eligible to receive a CESG grant.  If you have any carried forward CESG room, you make want to make a final contribution. 

7.  Homebuyers Plan (HBP)

If you are planning on withdrawing from your RRSP to buy a home under the HBP plan, you may want to delay the withdrawal until 2011 if possible.  This will give you a whole extra year to begin your HBP repayments. 

Terry Broaders

Buy a New Computer

If you have self employed business income now is a good time to buy a new computer for your business because there is a temporary 100% capital cost allowance (CCA) write-off available on computers bought after January 27, 2009, and before midnight, January 31, 2011. The 100% CCA rate allows businesses to fully deduct the cost of eligible computers, including systems software and related equipment in the year of acquisition. For example, a business owner with gross income of $60,000 purchasing a $1,000 computer would save about $297 in tax. If you make this purchase on or before December 31, 2010 this saving will be enjoyed on your 2010 tax return. If you make the purchase in 2011 the saving will be enjoyed on your 2011 tax return.

If you delay the $1,000 computer purchase until after January 31, 2011 then the tax savings for a self employed person with a gross business income of $60,000 will be about $80 in the first year rather than the $297 in the example above. Why? Because after January 31, 2011 the “half-year rule of acquisition” will apply; meaning only half of the purchase price ($500) will qualify for a write off in the first year and a CCA rate of 55% will apply rather than the temporary 100% rate for purchases before January 31, 2011. 

Of course, if you remain in business for the next few years you will ultimately enjoy the same write off spread over time, but if you purchase before January 31, 2011 you will enjoy the write off all at once.

In order to be eligible, the computer equipment purchased must be new and situated in Canada, and it must be used in a business carried on in Canada or used to earn income from property situated in Canada.  To clarify, this special write off is only for business owners and those with self employed business income. Regular individual salaried taxpayers or students are not eligible.

So if you have been considering a new computer purchase for your business now is the time.