It’s not too late — 5 things you can do right now to save on your 2017 personal taxes

November 14, 2017

If you're like many Canadian individuals, you probably don't spend too much time worrying about your personal income taxes until the filing deadline gets closer, which for 2017 won't be until either April 30, 2018 or June 15, 2018 (depending on whether or not you or your spouse are self-employed). However, as we approach the final weeks of 2017, it may be a good idea to turn at least some of your attention to personal income tax planning. This is because individuals are taxed on a calendar year basis, meaning that December 31, 2017 generally represents the last date for transactions that affect 2017 personal income taxes. So while you may not be thinking about tax planning on an ongoing basis throughout the year, there are good reasons to consider a number of tax planning opportunities now, before it's too late.

Below are several strategies to consider in order to minimize your taxes. Keep in mind that while not all of these strategies may apply to your particular situation, a trusted BDO advisor can assist you in determining which of these may make sense for you.

1. Consider selling investments with accrued losses

If you've realized capital gains in 2017 or in one or more of the last three years, consider selling assets with an accrued loss to offset these gains. In order for a disposition of marketable securities to be included in your 2017 tax year, you'll have to sell them on or before the stock exchange's last trading day for settlement in 2017. The last trading day for settlement in 2017 will generally be December 27 for Canadian exchanges. (Note that in 2017, Canadian exchanges generally shortened the length of time required to settle a trade from the trade date plus three business days to the trade date plus two business days). For other transactions, legal ownership must be transferred before the end of the year.

If you do decide to undertake a tax-loss selling strategy, you should be aware that rules (known as the stop-loss rules) may apply to deny losses on certain dispositions of property. For more information on the stop-loss rules, read our article titled Tax Rules to Remember When Triggering Capital Losses. Also, consult with a trusted BDO advisor in advance of any disposition to ensure that the loss you trigger can be claimed.

2. Pay amounts eligible for deduction or credit

Many items that are creditable or deductible for tax purposes must be paid by the end of the year. These amounts include alimony and maintenance, child-care expenses, investment counsel fees, professional dues, charitable donations, medical expenses, and political contributions. To ensure that you will benefit from the tax deduction or credit in 2017, be sure that you pay these amounts by December 31, 2017.

3. Make a contribution to your RRSP

In order to be deductible for 2017, your Registered Retirement Savings Plan (RRSP) contribution must be made on or before March 1, 2018. If you want to know how much you can contribute for 2017, your RRSP contribution limit will appear on your 2016 Notice of Assessment or you can check online using the Canada Revenue Agency's (CRA's) “My Account”. Your contribution limit for 2017 is 18% of your 2016 earned income (to a maximum of $26,010) less your 2016 pension adjustment, if any, plus any RRSP room carried forward from prior years.

As well, remember that if you will be 71 years old by December 31, 2017, you must collapse your RRSP by the end of the year. At that time, you can pay tax on the fair market value of the plan's assets, purchase an annuity or transfer your RRSP into a Registered Retirement Income Fund (RRIF). No tax is paid at the time of the purchase of the annuity or at the time of conversion into a RRIF. Note that despite collapsing your own RRSP, you may still be able to contribute to your spouse's RRSP under certain conditions. Speak to a trusted BDO advisor about tax planning opportunities available in the year you turn 71.

4. Remember to make your required HBP repayment

If you participated in the Home Buyers' Plan (HBP) prior to 2016, you may have a repayment due in the 2017 taxation year to the extent that your withdrawals have not been fully repaid. In order to make sure that the HBP repayment is not included in your taxable income for 2017, the required amount must be repaid to your RRSP on or before March 1, 2018. Repayments to your HBP do not affect your RRSP deduction limit. This means that you can still contribute to your RRSP and designate that amount as a repayment under the HBP, even if your RRSP deduction limit is zero.

5. Pay interest on low-interest loans

If you have entered into an income-splitting arrangement with family members by loaning your personal after-tax funds to either a spouse or a child at the prescribed rate (which is the interest rate set quarterly by the CRA based on short-term Treasury Bill rates), then you will want to make sure that the interest on such loans is paid before January 30, 2018. If the interest is not paid on time, the loan will be subject to the attribution rules which tax the income earned by your spouse or child in your hands. As you are likely aware, the government announced changes earlier this year that may affect this type of planning beginning in 2018. For more information, please refer to our Private Corporation Tax Changes Round-up resource.

As well, if you received a low-interest loan from your employer during any point in the year, you will want to ensure that interest is paid on that loan before January 30, 2018 in order to avoid a deemed taxable employment benefit. This benefit will also be calculated at the CRA's prescribed rate for the period that the loan was outstanding, less any interest actually paid. The CRA's prescribed rate remained at 1% throughout 2017.

Note that if you received a loan by virtue of your shareholdings rather than employment, a different set of rules will apply. If you borrowed money from your corporation during the year, contact your BDO advisor to discuss whether there are any income tax implications arising from the loan.

It's not too late to save on your 2017 taxes

Tax planning doesn't have to be something that only happens when you file your tax return. Rather, by investing some time to review your personal tax situation during the year, and especially as you near the end of the year, you may find that there are some easy things you can do to save on your annual personal tax bill.

Contact your local BDO office today to see which year-end strategies may be advantageous to you.

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