Three Must-Do Year End Tax Tips

Are you managing your assets with tax efficiency?  This year make sure both you and your spouse review your personal net worth statements to ensure your tax advantages are taken advantage of.  Here are three tips to consider.

1. Harvest Tax Losses. Year end is a good time to consider selling losers in your portfolio to offset the winners. Capital losses generated by the sale or transfer of stocks and bonds in a non-registered portfolio before year end will offset capital gains incurred this year. Unused losses can be carried back three years to offset capital gains you reported in any of those years — a great way to reach back and recover taxes previously paid. Or, you can carry unused capital losses forward indefinitely — an important way to manage taxes on your next winning investment.

2. Split income and transfer assets. Today's low interest rates make it opportune to borrow money to increase your investment portfolio. Interest on your loan is tax-deductible provided there is a reasonable expectation that your investment will generate income — interest, dividends, rents or royalties — in the future. (Note: capital appreciation is not considered income from investment.) For family income-splitting purposes, a spouse can lend money to a lower-income spouse to enable the reporting of investment income in that person's hands. Help your clients draw up a bona fide loan and charge the higher earning spouse the interest rate prescribed by Canada Revenue Agency (currently at 1%). Your spouse, however, must actually pay the interest by January 30 following each taxation year and the recipient spouse must, of course, report the interest on his or her tax return.

3. A TFSA is a must.   There are no attribution rules when a TFSA is funded for adult resident children.  Discuss the tax benefits of gifting adult children something really valuable for Christmas:  a Tax-Free Savings Account and the financial lessons to be learned from contributing the maximize year. The earnings that accumulate in the account are, of course, tax free and using this valuable savings room can build family millionaires.

NEXT TIME:  EIGHT SHORT SNAPPERS

Evelyn Jacks, a best-selling Canadian author of 52 books including Family Tax Essentials:  How to Create a Wealth Purpose with a Tax Strategy.  Evelyn is the Founder and President of Knowledge Bureau, a national educational institute focused on Real Wealth Management™. For more information see www.knowledgebureau.com.

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