While many Canadians may be aware of the importance of year-end tax planning, there are some equally important deadlines for implementing tax-saving strategies that may only be available in January and February.
RBC Wealth Management offers the following 12 Tips of Tax Planning as a guide:
1. RRSP contributions: The deadline to make a contribution to a registered retirement savings plan (RRSP) that can be claimed as a 2013 RRSP tax deduction is generally the 60th day after the 2013 year-end, which falls on March 1, 2014. But since March 1 falls on a weekend, the deadline has been extended to Monday, March 3, 2014.
2. In-Kind RRSP/TFSA contributions: If you don’t have sufficient cash on hand to make an RRSP contribution, you can consider making an “in-kind” contribution of eligible securities from your non-registered account to your RRSP. You can also contribute securities in-kind to your Tax-Free Savings Account (TFSA).
3. 2014 RRSP contribution room: Potential new RRSP contribution room is created every January 1 based in part on income earned in the prior year. In light of this, consider making an over-contribution of $2,000, which is not subject to the over-contribution penalty. Although the money is not tax-deductible, it can be deducted in a future year if you have the available RRSP room. To avoid the over-contribution penalty, you’ll need to check that you’re not more than $2,000 over your total contribution limit.
4. TFSA: Canadians who are 18 and over are eligible to contribute to a TFSA. The contribution limit was $5,000 per year from 2009 to 2012 inclusive, and is $5,500 for 2013 and 2014. If you did not use your contribution room in a previous year, the unused room is carried forward indefinitely.
5. Family income splitting loans: If you set up a prescribed rate loan with your spouse or a family trust in a previous year to split income, it is critical that the annual interest on the loan be paid on or before January 30, 2014.
6. Eligible retiring allowance: If you received an eligible retiring allowance in 2013, you’ll have until March 3, 2014 to make a special contribution to your RRSP (but not to a spousal plan) without requiring RRSP contribution room.
7. Labour-sponsored investment funds: Consider purchasing shares of labour-sponsored funds by March 3, 2014 to take advantage of a 15 per cent federal labour-sponsored funds tax credit on a maximum contribution of $5,000 (maximum $750 federal tax credit). An additional provincial tax credit may also be available. Speak with your advisor to determine whether an investment in a labour-sponsored fund is suitable for you.
8. LIRA conversion to LIF/RLIF: If you have a Locked-In Retirement Account (LIRA) and are planning to convert it to a Life Income Fund (LIF) or Restricted Life Income Fund (RLIF) in 2014, you may want to consider converting the plan in January 2014, rather than later in the year, to give you added flexibility to withdraw more from your LIF/RLIF in the first year.
9. 2013 Home Buyers’ Plan withdrawals: If you participated in the Home Buyers’ Plan (HBP) in 2013, but borrowed less than the maximum $25,000 tax-free from your RRSP, you may be eligible to make another tax-free RRSP withdrawal in January 2014 (up to the $25,000 maximum permitted). After January 2014, subsequent withdrawals will not qualify as tax-free.
For business owners:
10. Consider paying yourself a bonus: If you operate your own business with a year-end after June 30, consider paying reasonable bonuses to employees, including yourself. Canadian tax rules allow a corporation to deduct a bonus paid to an employee on the corporation’s previous year’s tax return as long as the bonus is paid within 179 days after its corporate year-end.
11. T4 filing deadlines for employers: If you have employees in your own business or you employ a nanny or babysitter, then you must file the appropriate T4 Summary forms to the CRA by the end of February. For 2014, the deadline is February 28. In addition, a copy of the T4 slip must be delivered or mailed to the employee(s) by this date.
12. Sale of private business shares: You may have disposed of “qualified small business corporation” shares in 2013 and realized capital gains that cannot be fully exempt under the $750,000 lifetime capital gains exemption. If this is the case, you may be able to defer all or some portion of the taxable capital gain if you reinvest the proceeds in a new eligible small business corporation any time in the year of disposition, or within 120 days after the end of that year.
As always, you should obtain professional advice from a qualified tax advisor before acting on any of the information above.