Year End Tax Tips

Jamie GolombekManaging Director

November 2009

2

#1 - Tax loss selling

Applied against capital gains– Including CG distributions from mutual funds

Must be used against 2009 gains first Excess can be carried back / carried forward

2006 2007 2008 2010 + future years2009

Form T1A

3

#1 - Tax loss selling - transfers

Transfer to RRSP?

- Loss denied

- Crystallize first, wait 30 days to buy back

Transfer to TFSA?

- Loss denied

Transfer to RESP?

- OK, but if held for 30 days, “superficial loss”

4

#1 - Tax loss selling – “superficial loss”

Superficial loss- Buy “identical property” within 30 calendar days

- Who?

You

Spouse/partner

Corporation controlled by you/spouse/partner

Trust, if you or spouse is majority-interest beneficiary

Transfer to parent / child – OK

Switch funds (3rd party funds)- Corporate to trust version (vice versa)

- Not identical properties

Two index funds? – CRA says “identical”

5

#2 - Home ownership and prospective home ownership

Home Renovation Tax Credit

First-Time Home Buyers’ Tax Credit

Home Buyers’ Plan

6

#2 – Home Renovation Tax Credit (HRTC)

Expenditures over $1,000

Maximum of $10,000

– Credit worth 15% of $9,000 = $1,350

Per family (spouse/partner, minor kids)

From Jan 28, 2009 until Jan 31, 2010

Eligible expenses?

– Labour, professional services

– Building materials

– Equipment rentals

– Permits

Ineligible?

– Routine maintenance

– Furniture, drapery, appliances

– Interest expense

7

#2 – Home Renovation Tax Credit (HRTC)

Air conditioners

Condo renos – specific/general

Docks

Driveways

Landscaping

Sauna

Solar panels

Swimming pools / hot tubs

Materials purchased before Feb 2010 qualify even if they are installed after January 2010

Labour only qualifies if work is done before February 2010, even if prepaid

8

#2 - First-Time Home Buyers’ Tax Credit

New $5,000 amount eligible for 15% credit– Value = $750

“First-time home buyer”– Neither individual nor spouse/partner owned home in

current or previous four calendar years

One claim per family– Unused credit can be transferred to spouse/partner

9

#2 - Home Buyers’ Plan

$25,000 can now be withdrawn from an RRSP, tax-free

Must be paid back over 15 years to avoid annual income inclusion

“First-time home buyer”– Neither individual nor spouse/partner owned home in

current or previous four calendar years

DEFER participation to January 2010 to delay repayment until 2012 (vs. 2011)

10

#3 – RRSP annuitants who turn 71 in 2009

Convert to RRIF (or annuity) by December 31

Final RRSP contribution must be made by December 31

– No sixty day rule

– Unless spousal RRSP with younger spouse/partner

11

#3 – RRSP annuitants who turn 71 in 2009

Consider one-time “over-contribution”

– Client (71) has $100,000 of earned income in 2009

– Will create $18,000 of RRSP contribution room for 2010

– Contribute $18,000 to RRSP in December 2009

– Pay penalty of 1% or $180 for month of December

– Deduct contribution in 2010 (or future year) against ANY source of income

12

#4 – Contribute to an RESP

$50,000 per child

No annual maximum

Maximize Canada Education Savings Grants (CESGs)

– 20% on first $2,500/annually = $500

– Catch-up CESGs back to 1998

• Max of $1,000 of CESGs per year

– $7,200 per child maximum

Child turned 15 in 2009 with no RESP?

– Contribute at least $2,000 to RESP in 2009 to get CESG for 2009 and make child eligible for 2010 and 2011 CESGs

13

#5 – Charitable donations

Must be made by December 31st

No capital gains tax on “in-kind” donations of publicly traded

securities to charity

Consider “donor advised funds” through public foundation

14

#6 – Contribute to a Registered Disability Savings Plan

$200,000 lifetime limit

Age 59 and under to open

Age 49 and under to get government funds:

– Canada Disability Savings Grants

• Family income < $77,664 (2009)

» 300% of first $500

» 200% of next $1,000

• Family income > $77,664

» 100% of first $1,000

• Lifetime max: $70,000

15

#6 - RDSPs (cont’d)

Canada Disability Savings Bonds

– Family income < $21,816 (2009)

• $1,000 annually (no contributions required)

– Family income > $21,816

• Reduced pro-rate until eliminated at income > $38,832 (2009)

– Lifetime max: $20,000

16

#7 – Purchase business assets

Claim a half-year’s depreciation even if asset bought on

December 31st

Accelerated tax depreciation for computer purchases

– Can write off 100% of cost of computers in year acquired

– No “half-year” rule

– For purchases from January 28, 2009 through January 31, 2011

17

#8 – Spousal/Partner Loan at 1%

Spouse or partner gifts/transfers funds

- FULL attribution of income / gains to transferor

Exceptions:

– Pay FMV or prescribed rate loan

Rate for Q4 2009 – 1%

– Lowest ever!

18

Jack loans Diane $200,000 Investment earns 5% annually

Income splitting opportunity: $8,000

Tax Savings (ONT): $8,000 X (46.41% - 21%) = $2,033 annually

Income $2,000

#8 – Spousal Loan at 1% (Example)

Jack$200,000

Interest Expense – 1%

Income $10,000

Interest expense (2,000)

Net income $ 8,000

Diane

19

#8 – Spousal Loan – Rate Reset?

What if you have an existing loan at 3% or 4%?

– Can you adjust rate on loan?

– Can you refinance with new loan?

20

#9 – Pay investment expenses by Dec. 31

Investment counseling fees (non-registered only)

Professional accounting services

Safety deposit box rental

Interest expense

21

#9 – Make Debt Tax-Deductible

“Singleton Shuffle”

$300,000$300,000

$300,000 $300,000

22

#9 – Make Debt Tax-Deductible (cont’d)

Lipson decision – Supreme Court (January 2009) General Anti-Avoidance Rule (GAAR) Use of attribution rules

Source: http://www.scc-csc.gc.ca/Details/d4-eng.aspCredit: Philippe Landreville, PhotographerSupreme Court of Canada Collection

23

#10 – Plan NOT to Get a Refund!

the euphoria of getting a tax refund that lasts only until you realize it was your own money to begin with…

in·tax·i·fi·ca·tion (in-täk-sə-fə-kā-shən) noun

24

2009 Tip #10 – Plan NOT to Get a Refund! (cont’d)

“Undue hardship” provision

Too much tax withheld at source

Due to:

– RRSP contributions

– Support payments

– Childcare expenses

– Charitable donations

Form T1213

25

#10 – Avoiding Clawback of 2010 OAS

Apply for 2010 reduction of clawback at source – OAS

Form T1213 OAS

26

QuestionsAnswers&