Checklist 2019: Save On Your Personal Taxes

October 10, 2019

As we approach the end of the year, now is a good time to think about personal income tax planning. Individuals are taxed on a calendar year basis, meaning that Dec. 31, 2019 is generally the last date for transactions that affect 2019 personal income taxes. So even though your personal tax return won't be due until April 30, 2020 (or June 15, 2020 if you or your spouse is self-employed), there are good reasons to consider a number of tax planning opportunities now before it's too late.

Below are several strategies to help you manage your tax costs. 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 make sense for you. He or she can also help with your tax planning needs.

1. Consider selling investments with accrued losses

If you've realized capital gains in 2019 or in one or more of the last three years, consider selling assets with an accrued loss to offset these gains. To include a disposition of marketable securities in your 2019 tax year, you need to sell them on or before the stock exchange's last trading day for settlement in 2019. The last trading day for settlement in 2019 will generally be Dec. 27 for Canadian exchanges. 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 superficial loss rules) may apply to deny losses on certain dispositions of property. In particular, the loss will be denied if you (or your spouse or a company you or your spouse control) repurchase the asset you disposed of for a loss within 30 days of the disposition.

2. Pay and manage 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, childcare 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 2019, be sure that you pay these amounts by Dec. 31.

Managing your medical expenses

In the case of medical expenses, only amounts in excess of $2,352 (limit may vary by province or territory) or 3% of net income (whichever is less) are eligible for a credit. In Quebec, eligible medical expenses must be reduced by 3% of family income.

If your medical expenses for the current year are already in excess of the threshold, and you anticipate that you won't have medical expenses in excess of the threshold next year, consider paying now for additional expenses that will arise in the near future. Although most medical expenses are only paid as the medical services or supplies are required, some can be paid in advance. Glasses and contact lenses are two common examples. If you're paying for a major expense such as braces on an instalment basis, consider paying the balance owing early to maximize your medical credit claim.

You may have no medical expenses that can be paid in advance. In that case, keep in mind that you can claim eligible medical expenses paid in any 12-month period ending in a given year. For example, consider this scenario:

  • Your medical expenses incurred in the 2019 calendar year don't exceed the threshold.
  • You need major dental surgery.
  • Those dental procedures will run from October 2019 to March 2020.
  • The total cost will be about $5,000, split evenly between 2019 and 2020.
  • Your other eligible medical expenses will total about $1,000 in each of 2019 and 2020.

In this scenario, you wouldn't claim any medical expense in 2019, and you could choose the 12-month period ending on Sept. 30, 2020 as the period to claim medical expenses on your 2020 income tax return. You can then claim all of the dental expenses incurred over the annual threshold, plus the other $1,000 of regular medical expenses incurred in the 12-month period ending Sept. 30, 2020. Note also that medical expenses eligible for the tax credit evolve over time and you should check the Canada Revenue Agency website for a list of common medical expenses that qualify for the credit.

3. Make a contribution to your RRSP

In order to be deductible for 2019, your registered retirement savings plan (RRSP) contribution must be made on or before on or before Feb. 29, 2020 (however, as this is a Saturday, it is anticipated that the due date will be extended to March 2). If you want to know how much you can contribute for 2019, check your RRSP contribution limit on your 2018 notice of assessment or online using the Canada Revenue Agency's (CRA's) My Account service or MyCRA mobile app.

Your contribution limit for 2019 is 18% of your 2018 earned income (to a maximum of $26,500) less your 2018 pension adjustment, if any, plus any RRSP room carried forward from prior years.

Also, remember that if you turn 71 on or before Dec. 31, 2019, 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 an RRIF. Note that despite collapsing your own RRSP, you may still be able to contribute to your spouse's RRSP, provided that such contributions are made no later than the end of the year in which your spouse turns 71.

4. Sell non-qualified investments in your RRSP

There are specific rules as to the types of assets your RRSP can hold. If you have a self-directed RRSP, you may have purchased assets that don't qualify, referred to as non-qualifying investments. Qualified investments generally include money, guaranteed investment certificates, bonds, mutual funds, and securities listed on a designated stock exchange.

If non-qualifying investments are acquired or existing investments become non-qualified, a tax equal to 50% of the amount of such investments will apply to the RRSP holder. Where the non-qualifying investment is disposed of, the tax will be refunded if certain conditions are met. If the purchase and sale are in the same year, the tax and the refund will generally be offset. If you find that you have non-qualifying assets in your RRSP, it will be beneficial to dispose of the non-qualifying assets before Dec. 31, 2019.

5. Remember to make your required HBP repayment

If you participated in the Home Buyers' Plan (HBP) prior to 2018, you may have a repayment due in the 2019 taxation year.

Generally, you have up to 15 years to repay the HBP loan from your RRSP. The CRA issues an annual HBP statement of your account, and your required repayment amount will be shown on that statement. Your 2019 minimum repayment amount will be shown on the statement, which would have been received with your 2018 notice of assessment.

If the minimum repayment isn't made, you will be required to include the shortfall from the minimum payment in your income. To ensure the minimum annual HBP repayment isn't included in your taxable income for 2019, the required amount must be repaid to your RRSP on or before Feb. 29, 2020. A repayment is made by making a regular contribution to your RRSP. Repayments to your HBP don't 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.

If you are eligible to participate in the HBP, you should keep in mind that the government increased the withdrawal limit to $35,000 from $25,000 in respect of withdrawals after March 19, 2019.

6. 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 a spouse or common-law partner, a minor child, or a family trust at the CRA's prescribed rate, you should pay the interest before Jan. 30, 2020. If the interest isn't paid on time, the loan will be subject to the attribution rules, which will tax the income earned by the family member who received the loan in your hands.

Also, if you received a low-interest loan from your employer during any point in the year, you should ensure that interest is paid before Jan. 30, 2020 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 has been 2% since April 1, 2018.

Note that if you received a loan by virtue of your shareholdings rather than employment, a different set of rules will apply. In addition, since Jan. 1, 2018, the tax on split income rules were expanded and could affect loans from private corporations to certain family members. If you or your family members borrowed money from your corporation, contact your BDO advisor to discuss whether there are any income tax implications arising from the loan.

7. Reimburse the costs associated with company cars

If your employer provides you with a company car, a taxable benefit will be included on your T4 slip.

The actual benefit is made up of two parts:

  • A standby charge for making the automobile available for your use. It's calculated based on a percentage of the original cost or the monthly lease payments for the automobile.
  • An operating benefit that applies if your employer pays the automobile's operating expenses, such as gasoline and maintenance. A portion of the employer-paid operating expenses will be a taxable benefit if you've driven the automobile for personal purposes. In 2019, this benefit is equal to $0.28 per personal kilometre driven.

The standby charge and the operating benefit are reduced by the amounts you pay to your employer. For a standby charge reduction, your payment must be made on or before Dec. 31, 2019. For an operating benefit reduction, you will have until Feb. 14, 2020 to make a reimbursement to your employer to reduce your taxable benefit.

8. Check your personal income tax instalments

If you're required to pay tax instalments, now is a good time to check to see if you're up to date on your 2019 payments. If you've paid the instalments on the notices sent to you by the CRA for 2019 and plan to make the required final payment by Dec. 15, 2019, then you are up to date.

If you paid less than the amount on the CRA notice because you thought that your income for 2019 would be less than 2018, now is a good time to check to see if you have paid enough.

If you haven't paid your tax instalments, the CRA will charge you interest at the current rate of 6%. If you find that you haven't paid enough for your estimated income for 2019, you can make an overpayment on your instalment account to generate an offset to some or all of the interest charges that will otherwise be assessed. Check with your BDO advisor for assistance in making a determination as to whether this would be a good strategy for you. Further information about income tax instalments can be found in our bulletin, Failure to Pay Instalments Can Be Costly.

Note that individuals whose main source of income is self-employment income from farming or fishing are only required to make one instalment payment, which is due by Dec. 31.

It's not too late to save on your 2019 taxes

Tax planning shouldn't be something that only happens when you file your tax return. 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 some easy ways to save on your annual personal tax bill.

Contact your local BDO office today to see which year-end strategies work best for you.

The information in this publication is current as of Aug. 28, 2019.

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

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