The document provides 10 tax tips for the end of 2009. It discusses tax loss selling and strategies for realizing capital losses. It also covers tips related to home ownership such as tax credits for home renovations and purchasing a first home. Other tips include contributing to RRSPs and RESPs, making charitable donations, and taking advantage of low interest rates on spousal loans. The document recommends paying expenses and making debt tax-deductible by the end of the year. The final tips are to plan not to get a tax refund and avoid clawback of old age security payments.
US Estate Tax for Canadians and Other Cross Border Tax Issues
Jamie Golombek CIBC - Client Seminar Year End Tax Planning
1. Year End Tax Tips
Jamie Golombek
Managing 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
2009
2006 2007 2008 2010 + future years
Form T1A
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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”
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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”
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5. #2 - Home ownership and prospective home ownership
Home Renovation Tax Credit
First-Time Home Buyers’ Tax Credit
Home Buyers’ Plan
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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
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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
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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
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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)
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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. #8 – Spousal Loan at 1% (Example)
Jack loans Diane $200,000
Investment earns 5% annually
Interest Expense – 1%
Jack Diane
$200,000
Income $2,000 Income $10,000
Interest expense (2,000)
Net income $ 8,000
Income splitting opportunity: $8,000
Tax Savings (ONT): $8,000 X (46.41% - 21%) = $2,033 annually
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?
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.asp
Credit: Philippe Landreville, Photographer
Supreme Court of Canada Collection
23. #10 – Plan NOT to Get a Refund!
in·tax·i·fi·ca·tion (in-täk-sə -fə -kā-shə n) noun
the euphoria of getting a tax refund that lasts only until you realize
it was your own money to begin with…
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
However, since the CESG has been designed to encourage long term savings for post-secondary education, there are specific contribution requirements for beneficiaries who attain 16 or 17 years of age. RESPs for beneficiaries 16 and 17 years of age can only receive CESG if at least one of the following two conditions is met: a minimum of $2,000 of contributions has been made to, and not withdrawn from, RESPs in respect of the beneficiary before the year in which the beneficiary attains 16 years of age; or minimum of $100 of annual contributions has been made to, and not withdrawn from, RESPs in respect of the beneficiary in at least any four years before the year in which the beneficiary attains 16 years of age. This means that you must start to save in RESPs for your child before the end of the calendar year in which the beneficiary attains 15 years of age in order to be eligible for the CESG.