Transcript: 2019 year-end tax tips

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[2019 Year End Tax Tips]

[CIBC logo. Jamie Golombek, Managing Director, Tax and Estate Planning, CIBC Financial Planning and Advice]

Hard to believe, but it's that time of year again, time from some year-end tax planning. Let's take you through some of the top issues that individuals might want to consider as we approach the end of the year.

[Tax-loss selling]

First of all, let's start with year-end tax-loss selling. 

[Tax-loss selling involves selling investments at year end to offset capital gains elsewhere in your portfolio]

Tax-loss selling is when you sell investments with accrued losses at the end of the year to offset gains realized elsewhere in your portfolio. Any losses that you currently don't use can be carried back 3 years to recapture capital gains tax paid in those 3 years or carried forward indefinitely to offset capital gains in future years.

For your loss to be available for 2019, however, you've got to make sure the settlement takes place in 2019.

That typically means that the trade date must be no later than December 27, 2019 so that the trade settles by December 31, taking into account the intervening weekend.

[For securities bought in a foreign currency, consider the exchange rate when computing the gain or loss]

Also, keep in mind that if you purchased securities in a foreign currency, you've got to compute the gained or loss, taking into account the foreign exchange component, which means in some cases a gain may be a loss or a loss may be a gain depending on the timing of when you bought the security and the movement of the foreign exchange during that period.

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[Superficial loss rules]

[1:24] Always be mindful when doing year-end tax loss selling of the superficial loss rule, which says that if you sell a security with a loss and you buy it back or an affiliated person buys it back — and affiliated means a spouse, a partner, a corporation controlled by a spouse or partner, even a RRSP or TFSA, buys it back within 30 days after the day of sale, then that loss can be denied and is added to your ACB, your adjusted cost base.

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[Delay certain RRSP withdrawals]

[1:52] You may also wish to be strategic about certain registered plan withdrawals. 

So, for example, if you take out money from an RRSP, maybe under the Homebuyer's Plan or the Lifelong Learning Plan, you may want to delay that withdrawal slightly into the beginning of 2020 rather than take it out towards the end of 2019. That'll give you an extra year before you have to begin repaying the annual amounts.

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[Timing of TFSA withdrawals]

[2:19] On the other hand, when you're taking money out of a TFSA, you may wish to withdraw the money in 2019 rather than waiting till 2020, because that gives you extra time to put the money back. 

[Consider TFSA withdrawals in 2019, which gives you more time to put the money back]

In other words, you could put the money back in immediately the following year, 2020, instead of waiting until 2021. 

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[Convert your RRSP to a RRIF by age 71]

[2:44] For individuals who turned 71 in 2019, you've only got until December 31 to make that final RRSP contribution. You don't have the normal RRSP deadline, which would be March 2. 

You might be interested, also, in making a one-time over contribution to your RRSP in the month of December 2019. You would do that if, for example, you had earned income in 2019 that will generate contribution room for 2020, but, because you can't have an RRSP in 2020 because you'll be over 71, you over contribute in December 2019, pay a bit of a penalty tax of 1% for that 1 month of December 2019, but January 1, 2020 new RRSP room opens up, and therefore allows you to deduct that amount starting in 2020 or a future year. 

[After age 71 you may be able to use your contribution room for a younger spouse or partner]

Now that may not be necessary if you've got a younger spouse or partner, because you can still use your room after 2019, after you’re 71, to make a spousal or partner RRSP contribution until the age that your spouse or partner is 71.

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[Families with students]

[3:50] Other things to think about, well, for families with students, think about RESP contributions. 

You don't want to miss out on the free 20% of Canada Education Savings Grant of $2,500 of annual RESP contributions. And if you've got a beneficiary who turned 16 this year, you got to be very careful because they may lose the opportunity to get the maximum government grants, if you haven't already contributed to an RESP.

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[Family members with disabilities]

[4:21] The non-refundable Home Accessibility Tax Credit for seniors and individuals with a disability tax credit, can help them with certain home renovations. 

[Helps seniors and those with a disability with certain home renovations]

That credit is worth 15% on up to $10,000 of expenses. That applies to any payments made by December 31 for any work or goods acquired in 2019. That might be something to consider before the end of the year. 

[Contribute to a Registered Disability Savings Plans (RDSP)]

RDSPs, Registered Disability Savings Plan, allow an individual eligible for the disability tax credit to get significant government grants and bonds. 

You may want to contribute before the end of the year to get the 2019 grants and bonds.

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[Make donations in-kind]

[5:06] When it comes to charitable giving, I often talk about tax gain donating. 

If you've got a some appreciated securities in your portfolio that have gone up, consider donating them in-kind to a registered charity before the end of the year. Not only do you get a tax receipt for the fair market value of that gift, but you will also pay no capital gains tax on the particular gain on the security that's being donated in-kind to charity.

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[Individuals with changes to tax rates]

And finally, if you expect your tax rate to be different in 2020, you may want to plan, to the extent possible, the timing of various deductions and income inclusions.

[If you expect a different tax rate in 2020, consider timing of various deductions and income inclusions]

So, for example, if you have an opportunity to exercise stock options or trigger a gain by selling an investment in 2019, depending on your tax rate this year versus next year, you might consider whether or not it makes sense to either realize those gains this year or take them in 2020 depending on the change in your own personal tax rate.

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[CIBC financial advisors provide general information on certain tax, investment and estate planning matters; they do not provide tax, accounting or legal advice. Please consult your personal tax advisor, accountant, licensed insurance professional and qualified legal advisor to obtain specialized advice tailored to your needs.

This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this document should consult with his or her advisor. All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated, and are subject to change. ^®The CIBC logo is a registered trademark of Canadian Imperial Bank of Commerce (CIBC). The material and/or its contents may not be reproduced without the express written consent of CIBC.]