TORONTO, Oct. 26, 2012 /CNW/ - While October 31 can be especially scary for little ones, December 31 can prove downright haunting for adults if they haven't considered certain year-end tax planning strategies. RBC Wealth Management has suggestions for Canadians to ensure they take all necessary 2012 tax planning tips into account.
"December 31 is second only to April 30 as a crucial date in the tax planning calendar," said Tony Maiorino, vice-president and head, RBC Wealth Management Services. "Because this date represents the last day of the year that potential tax savings opportunities are available, you need to start planning now to help achieve your financial goals."
Failing to consider the following 13 potential tax planning strategies may make your December 31 particularly spooky:
For business owners:
- Incorporated company: If you are a business owner with an incorporated company, you may find both year-end corporate income tax deductions and a structured retirement savings plan for yourself through an Individual Pension Plan (IPP).
- Salaries for family members: As a business owner, consider paying salaries to yourself and appropriate family members before December 31. When used correctly, this strategy can give your family members earned income enabling them to make an RRSP contribution the following year and giving your business a tax deduction in the current year.
- Purchasing assets: If you are a business owner and intend on purchasing assets for your business, e.g. computers, purchasing them before December 31 may allow your business to claim depreciation on these assets for tax purposes.
- Prescribed rate loan to spouse: With Canada Revenue Agency (CRA) stating the prescribed interest rate will remain at a historical low of one per cent until December 31, it is an opportune time to consider establishing or modifying a spousal loan as a possible income splitting strategy.
- Unrealized capital gains: If you have unrealized capital gains, you may want to consider deferring them until after December 31 if your marginal tax rate may be lower in 2013 compared to 2012. This could allow for any tax payments to be deferred until 2014.
- Tax loss selling: Are you facing a large capital gain in 2012? Perhaps you sold a rental property, securities or your business. If so, you may wish to maximize the opportunities associated with selling securities that have an unrealized capital loss to help reduce your tax liability or obtain refunds for taxes paid in previous years.
- Charitable donation: Making a charitable donation is an excellent choice for reducing the personal tax you pay. The final day to make contributions to a registered charity in order to claim the donation tax receipt on your 2012 income tax return is December 31. However, if you plan on donating securities in-kind before year-end, then due to the administration involved in processing an in-kind donation, ensure that you start this process well in advance of the year-end to ensure that the in-kind donation is recorded as a 2012 donation.
- Registered Retirement Savings Plan (RRSP) Conversion: If you are turning 71 in 2012, you cannot have an RRSP after December 31. Consider making your expected 2013 RRSP contribution in December before converting your RRSP.
- Employer Bonus: Are you receiving an employer bonus by December 31? Deferring it may be a wise choice for you if you are expecting to be in a lower tax bracket in 2013.
- Registered Education Savings Plan (RESP): If you are contributing to a RESP, you'll want to ensure you have contributed the maximum allowed in order to qualify for the 20 per cent Canada Education Savings Grant by December 31.
- Moving within Canada: If you plan to move within Canada, consider that individuals pay provincial tax rates on taxable income based on their province of residence on December 31. Since marginal tax rates vary from province to province (and from 39 to 50 per cent), you may want to consider moving prior to December 31 if you are moving to a province with a lower tax rate.
- Quarterly payments to CRA: If you make quarterly tax installment payments to the CRA, you should consider making your final payment on or before December 15 to avoid late interest charges.
- Fees: Remember to pay all investment management fees, tuition fees, safe deposit box fees, accounting and legal fees if deductible, childcare expenses, alimony, medical expenses and any business expenses by December 31 if your intent is to deduct them on your 2012 tax return.
All tax saving strategies should be reviewed by a qualified tax specialist and, where appropriate, by your investment advisor, to ensure all appropriate regulations, laws and individual personal considerations are taken into account.
About RBC Wealth Management
RBC Wealth Management is one of the world's top 10 largest wealth managers. RBC Wealth Management directly serves affluent, high-net-worth and ultra high net worth clients in Canada, the United States, Latin America, Europe, the Middle East, Africa and Asia with a full suite of banking, investment, trust and other wealth management solutions. The business also provides asset management products and services directly and through RBC and third-party distributors to institutional and individual clients, through its RBC Global Asset Management business (which includes BlueBay Asset Management). RBC Wealth Management has more than C$562 billion of assets under administration, more than C$324 billion of assets under management and approximately 4,300 financial consultants, advisors, private bankers and trust officers.
For further information:
Bev MacLean, RBC Corporate Communications, [email protected],