Tax Planning Checklist
The following checklist provides tactics you should consider as part of your year-end tax planning. If you need further explanation, please contact Chaplin & Co. LLP, Chartered Professional Accountants at 416 667 7060 or firstname.lastname@example.org.
- Adjusted cost base - If you made the 1994 capital gains exemption election, don’t forget to take into account the new adjusted cost base or the exempt gains balance in determining the capital gain or loss.
- Eligible dividends - consider investments that yield dividends eligible for enhanced dividend rates rather than interest or non-eligible dividends investments as the marginal rate on eligible dividends is 39.34% compared with 47.74% for non-eligible dividends and 53.53% for interest income.
- Accrued capital losses -
- Sell securities with accrued losses before year end to offset capital gains realized in the current or previous three years.
- Close out option contracts with inherent capital losses in 2023, rather than 2023, to shelter taxable capital gains.
- Accrued capital gains -
- Delay selling securities or other assets with accrued gains until 2023.
- However, if you have capital losses to use up consider triggering gains and reinvesting the proceeds as it will allow you to increase your adjusted cost base without significant tax cost.
- Stock exchange cut-off - Consider that December 23 is likely the last day on which a sale executed through a Canadian stock exchange will be considered a 2022 transaction (for tax purposes). Different dates may apply for foreign exchanges.
- Mutual fund purchases - Delay mutual fund purchases to January 2023 to ensure you are not allocated taxable income for 2022.
- Interest deductibility - If possible, pay off non deductible debt before deductible debt. (Always borrow for investment or business purposes and use cash for personal purchases that would otherwise generate interest costs.)
- Long-term interest bearing securities - If you are planning to invest in securities that have a maturity of over 1 year, consider waiting until 2022 as you will not have to pay interest until 2023 - the year of the first anniversary of the investment.
- Transfers involving trusts - If you were or will be involved in transfers to or from trusts, contact us for a careful evaluation of the tax implications. The transfers may trigger a taxable event.
- Non-resident trusts - If either you or your corporation is a contributor to, or a beneficiary of, a trust that is not resident in Canada, the trust may be deemed to be resident of Canada for tax purposes, with significant consequences for either itself or its beneficiaries.
- Foreign investment entities (FIEs) - If you invest through offshore funds, take steps to mitigate the potential adverse tax consequences of the draft legislation that will change the tax treatment of shares or other interests held in FIEs (these rules are still in draft form).
- Review make-up of your portfolio - If you have earned interest income, which is highly taxed, outside your RRSP, consider restructuring your portfolio so that it is more tax efficient.
- Capital gains rollover - Invest proceeds on sale of eligible small business investments in other eligible small business investments.
- Donating securities - Consider donating securities which have accrued capital gains, as capital gains from donated securities are exempt from income tax.
- Tax-Free Savings Account (TFSA) - Consider contributing $6,000 if you are a Canadian resident age 18 or over. The TFSA contribution room is cumulative and can be carried forward indefinitely. For 2021, the cumulative contribution limit to the TFSA is $75,500. In 2022, the TFSA contribution limit is $6,000, with a cumulative limit of $81,500.