Transcript: 2021 year end tax tips
[Soft music playing]
[Jamie Golombek, Managing Director, Tax and Estate Planning, CIBC Private Wealth]
As we get closer to the end of 2021, there are a number of specific tax planning opportunities that you might wish to take a look at before the end of the year.
We just released our brand new and updated 2021 year end tax tips. And it's something that would be a great reference to review before the end of the year. Let's go through some of the highlights and things that you want to think about before December 31st.
[A CIBC document outlining a list of tax saving tips.]
Every year we talk about tax loss-selling. Most people don't have a lot of losses in the portfolio this year, but if you do, you want to recognize that loss so that the trade date is no later than December the 29th, so that the trade settles by December 31st. So, you can recognize that capital loss in 2021.
[A close-up of various international currencies followed by U.S. $100 bills fanned out]
Pay attention; if you bought perhaps securities in foreign currencies like the U.S. dollar, to take into account any foreign exchange rates when calculating that gain or loss. Because depending on the timing of when you bought that security, you might actually have a gain on the FX side, even if it appears that you had a loss on the security side.
[Be mindful of the superficial loss rules]
Of course, you want to be mindful of the superficial loss rules.
[A young man types at a desk looking at financial data on a computer screen. A young couple look at the screen of a laptop.]
If you buy it back within 30 days, the loss would be denied. If you buy it back, your spouse buys it back, your partner buys it back, corporation, trust, RRSP, TFSA, any of those things buy it back within 30 days, you're going to be denied that capital loss. So, just pay attention, wait at least 30 days plus 1 before you buy back a stock or any other position that you've sold and you wish to recognize the capital loss.
RRSP deadline, of course, is still March 1st.
[An older man sits at a table talking on a cell phone with a laptop open in front of him.]
However, if you did turn 71 in 2021, you've got to make your final contribution by the end of the year unless, of course, you have a younger spouse or partner, which you can continue to make a spousal RRSP contributions.
[Prescribed rate loan strategy]
The prescribed rate loan strategy will be available still till the end of the year.
[An older couple talk to a financial advisor.]
That's the 1% prescribed rate loan, so an opportunity to loan assets to a spouse or partner for the benefit of income splitting, as long as you charge a minimum prescribed rate. And just a reminder that if you have done a prescribed rate loan, you’ve got to make sure that you make those payments within 30 days of the end of the year. That's January 30, 2022, which is coming up pretty soon, for that strategy to work for the current year and for all future tax years.
[Changes to tax rates]
Other things to think about, in particular, are changes to tax rates.
[A person’s hand close up filling out tax forms on a messy desk.]
So, in other words, if you think your tax rate is going to be very different next year in 2022 versus 2021, there may be things that you can do depending on your situation to either accelerate income for this year or defer that income to next year.
[Low angle shot of Canadian flags on a sidewalk. Images of the Parliament of Canada buildings.]
You may also want to think about changes to our tax regime in general, as a result of the recent federal election. We know that there are certain potential changes in tax law that might actually impact your future taxes.
[The clocktower of the Parliament of Canada seen at dusk. A lawn sign that reads, “HOUSE FOR SALE BY OWNER. An aerial view of a residential neighbourhood. The interior of an empty apartment.]
For example, the Liberals’ pre-election proposal to tax the sale of residential properties that were held less than one year, could result in tax payable on what otherwise would have been something that would qualify for a principal residence exemption.
We also know that the NDP have a couple of proposals to increase the top marginal rate and increase the capital gains inclusion rate.
[Drone shot over Rideau Canal with parliament buildings in the distance. The clocktower of the Parliament of Canada.]
Those may hold some sway with the Liberals as they put together their agenda in the months ahead. So, keep in mind that there could be higher tax rates in 2022 and think about whether you want to take some of those potential gains in 2021, if it makes sense to do so.
[Business owners and employers]
For business owners and employers, things to think about, compensation planning, that classic issue of salary versus dividends. You want to think about being able to pay yourself, in most cases, sufficient salary in 2021 to make an RRSP contribution in 2022.
[An image of the report “Just do it: The case for tax-free investing”.]
So, something to think about. We discuss this in several of our other reports, including a report called “Just do it: The case for tax-free investing”…
[An image of the report ““Bye-Bye bonus! Why business owners may prefer dividends over a bonus”.]
…and a report “Bye-Bye bonus”, which discusses compensation decisions in greater detail.
[Get your affairs in order before tax season]
And then finally, you want to think about the opportunity to make sure that you get all your tax affairs in order well before tax season.
[Folders stacked on top of each other. Numbers being input on the calculator app of a cell phone. Images of people looking over documents and tax forms.]
So again, instead of rushing next March or April to prepare your personal tax return, now is a great time to go through the year, review your financial records. Because most of the tax planning that you're going to do for 2021, and your 2021 tax return, must be done in 2021.
So, for example, if you've got significant medical expenses, you want to make a significant charitable donation, if you've got interest on deductible investment loans, those all must be paid by December 31st to claim a deduction in 2021.
It will be too late come next spring when you're trying to file your 2021 tax return, to do most of the tax planning that we talked about today. So again, think about it, read the report and at the end, speak to your tax advisor to recommend if any of these strategies would be appropriate for you.
[Soft music playing]
[CIBC 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 video 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.
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[The CIBC logo is a trademark of CIBC, used under license.]