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Tax and investment planning tips for 2020 year end

By ATB Wealth 26 November 2020 2 min read

With 2020 soon coming to a close, there are a few weeks left to consider year-end tax and investment planning. Outlined below are three planning opportunities that may be of interest to you.

Charitable donations

To be eligible to receive a tax credit for the 2020 tax year, charitable donations must be made by December 31, 2020. A taxpayer can claim donations up to 75% of his or her net income in any year. Any amount not utilized in the year can be carried forward and claimed in any of the five subsequent years.

For Alberta resident individuals, the 2020 combined federal and provincial charitable donation tax credits will represent 25% on the first $200 donation in the year, 50% on donations in excess of $200 (where the taxpayer is not in the top federal marginal tax bracket) and 54% on donations in excess of $200 (where the taxpayer has sufficient income above $214,368).

TFSA withdrawal planning

If you anticipate accessing money from your TFSA in early 2021, it may make sense to withdraw the funds before the end of 2020. This will allow you to maximize your 2021 TFSA contribution room, which will be relevant if you anticipate having funds available to re-contribute to your TFSA in 2021. Your 2021 TFSA contribution room will be made up of:

  • The annual TFSA dollar limit ($6,000 for 2021); plus
  • Any unused TFSA contribution room from the previous year; plus
  • Total amount of withdrawals from TFSAs in the previous year (excluding qualifying transfers and withdrawals of TFSA “excess”).

Tax loss selling

Selling an investment for a capital loss is often referred to as tax loss selling. Capital losses may only be used to offset capital gains, not to reduce other income. Investments should not be sold just to trigger a tax loss. 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.

Tax loss selling only applies to investments held outside of registered plans. Consideration should also be given to the superficial loss rules.

In order to realize losses in 2020, trades must be made on or before December 29, otherwise the trade will not settle until 2021 and the loss won’t be available until the following year.

Get in touch with an ATB Wealth financial advisor to learn more about these year-end tax and investment strategies.

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