As we approach December 31st, it is time to think about year-end tax planning for your clients. This tax tip provides you with a checklist of some of the more common year-end planning considerations.
1. Ensure that all charitable donations are made by December 31st. Otherwise, they will not be eligible for the donation tax credit until 2004.
2. To receive tax benefits of certain expenditures for 2003, ensure that they are paid before December 31st. These include Medical Expenses, Union Dues, Investment Counsel Fees, Investment Management Fees, Alimony and Maintenance Payments, Child Care Expenses, Political Contributions and Accounting Fees.
3. If you have loaned money to your spouse, ensure that interest is paid on this loan no later than January 30, 2004, to ensure non-attribution of the income.
4. Ensure that RRSP contributions for the 2003 taxation year are made no later than March 1, 2004. The sooner the contributions are made, the sooner the tax-free compounding effect will kick in.
5. If your client has turned 69 during the year, he must make his RRSP contribution on or before December 31st. In addition, your client must annuitize his RRSP before the end of the year.
6. If your client has unrealized capital losses in his investment portfolio and has realized capital gains during the year, he should trigger the unrealized losses before December 31, 2003 to shelter the gains from tax. The last trading date for 2003 is December 24th. Therefore, any trades should be executed on or before December 24th, otherwise the trades will not settle until 2004, and the loss cannot be reported on the 2003 return.
7. Consider shifting income to 2004 to defer tax. For example many employers offer their employees an option to receive their Christmas bonus in January.
8. If you are the recipient of a seasonal gift from your employer, an amount up to $500 can be received tax-free. Your employer will get the deduction for the gift.
This list of tax strategies is not exhaustive, but it should provoke thought and help minimize your client's overall 2003 tax liability.
TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.