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.