‘Tis the Season for Planning

by Rick Sutherland, CLU, CFP, FDS, R.F.P

As the year 2010 draws to a close our thoughts are turning toward the festive season, family and celebration. The year-end also brings another deadline well worth considering. With the exception of RRSP contributions and maybe a few other tax planning strategies, you have until December 31 to take any final action related to your tax reduction plans for 2010.

Here are some ideas that you may wish to consider before the end of the year. Then again, you may wish to implement these ideas on an ongoing basis and reduce your income tax bill in future years.

For your non-registered accounts you may have some investments that increased in value and others that declined in value. You may want to speak to your financial advisor about selling your losers and apply the losses against your gains. It is recommended that you make these decisions before Friday December 19 in order for trades to be placed, settled and be eligible for use in 2010. Otherwise the trade may settle in 2011 and not be useful in 2010. Capital losses can be used in the current year, carried back three years or carried forward indefinitely. Be careful of the superficial loss rule which states that when you sell a property for a loss and then buy it back within 30 days your loss will be disallowed.

If you are going to buy an interest-bearing investment with a maturity of one year or more, and it is held outside your RRSP, wait until after December 31. By waiting until January 2011 the first anniversary for interest earned will be January 2012. The interest income will be reported in the spring of 2013 on your 2012 tax return. This is almost a two year tax deferral strategy.

Make your charitable donations before the end of the year. You may want to consider donating publicly traded securities. Any resulting capital gains on donated securities are not subject to tax and you receive a donation receipt for the full market value of the donated investment. It might make more sense, from a tax point of view, to donate securities rather than cash.

There are a multitude of ideas and strategies one can use for year end tax planning. Whether you’re considering tax shelters or charity donations you should speak to your trusted financial planner and accountant to go over your ideas and discuss any last minute tax strategies that can be completed before the end of the year.

So while you are mulling over your decision to go with turkey or ham for your holiday feasting, you may want to devote a little time toward tax planning. These and many other tax reduction strategies should be practiced year round, not just at year-end. We wish our readers a happy holiday and a prosperous 2011.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail rick@invested-interest.ca. Mutual Funds provided through FundEX Investments Inc.

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