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Year-end tax tips to help reduce your tax bill

Year-end tax tips to help reduce your tax bill

Posted on: December 26, 2016
Author: Staff

You might not have to worry about filing your income taxes until April of next year, but the end of the calendar year presents some key opportunities to reduce the amount you’ll have to pay. Smart investing, claiming tax-credits and deductions, and applying for applicable programs with the Canada Revenue Agency (CRA) could help you save on your taxes for 2016.

Avoid paying more tax than you need to and put yourself in a better financial position in 2017 with these year-end tax tips.

Pay your tax deductible expenses

There are a number of purchases you can make before the year’s end that will help reduce your tax bill. Those who are self-employed might be able to claim expenses like office supplies, equipment and vehicle repairs. Make sure you purchase the things you need for your business and take care of any maintenance on your work-related equipment and vehicles before 2017.

If you’re self-employed and purchase medical insurance, your premiums are generally tax-deductible. Even if you work for an employer, any additional medical expenses that are not covered by your employer’s insurance plan can be claimed as a medical expense on your tax return.

Submit the CRA’s T1213 form

The T1213 form allows you to request to reduce tax deductions at the source for any deductions, credits or non-refundable tax credits that are not part of the regular Personal Tax Credits Return.

“Once approved by the CRA, this will allow your employer to reduce the amount of tax withheld on your regular paycheques by taking into account deductions such as RRSP contributions, child care costs and so on,” said ATB Investor Services’ Senior Solutions Analyst Financial Planning, Linda Lamarche. “Ultimately, this will increase the amount in your pockets for 2017.”

Review your investment portfolio

The end of the year is a great time to meet with your ATB Investor Services advisor and review your investment portfolio. If you have earned income through non-registered investments, this income will likely be taxed. Consider moving those investment dollars so you are earning that interest inside a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA). It might be too late for this year, but you will benefit from the tax shelter when filing taxes for 2017.

Make any necessary withdrawals from your TFSA

“If you anticipate accessing money in your TFSA in early 2017, it may make sense to make that withdrawal by the end of 2016,” advised Lamarche. “Otherwise the amount of the withdrawal will not be added back to your TFSA room until 2018.”

If you make that withdrawal in 2016, you will free up more room to contribute back into your TFSA in 2017, allowing you to take advantage of that tax-free savings without having to wait an entire calendar year.

Consider selling losses and be aware of trade deadlines

You might not be able to make up for losses you accrued in your investments this year, however, selling those investments year-end to offset capital gains realized elsewhere.

“Selling securities at a loss should only be done as part of an overall investment plan and if you no longer have a reason to hold the security,” said Lamarche. “Any net capital losses that cannot be used for the current tax year may either be carried back three years or carried forward indefinitely to offset net capital gains in other years.”

The settlement must take place in 2016 for your loss to be available for 2016 or a prior year. Lamarche also stated that the trade date must take place no later than December 23, 2016.

Make your charitable donations

In order to receive a tax credit for the 2016 tax year, charitable donations must be made by December 31, 2016. You can choose to carry forward any donations and claim them on your return for any of the next five years. You can also claim donations that you chose to carry forward in previous years on this upcoming return.

The federal credit is 15 per cent on the first $200 and 29 per cent thereafter. If you make over $200,000 annually, the federal credit is 33 per cent. The provincial credit is 10 per cent on the first $200 and 21 per cent thereafter. If you haven’t claimed any charitable donations made by you or your spouse in the last five tax years, you might be eligible for the first-time donor credit. This super-credit provides an additional 25 per cent to the above rates on the first $1,000 of your donations made.

Deal with your debt

“It is always a good idea at any time to pay down debt that is high-interest and non-deductible. While it may not necessarily change your tax situation, it will improve your financial situation,” said Lamarche.

If you are financially able to, paying off high-interest debt will give you peace of mind and a fresh start for 2017. Consolidating your consumer debt by borrowing money from a lower-interest lender to pay off your higher-interest debt could help you get out of debt faster at a lower cost. Keep in mind that maximizing your opportunities for tax savings could give you a bigger tax return and you can use that money to help pay off your debt. A financial advisor can help you determine the best plan of action for your situation.

Learn more about why you should consolidate debt.

For more information on year-end tax planning or for any of your specific questions, we’re here to help. However for any complex tax needs we always recommend you seek professional advice from an accountant or tax lawyer.

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