Ottawa Investment Advisor John Bruce

Save some more before 2009 completes!

December 14, 2009 · Print This Article

Although 2009 is almost over, your tax fate is not yet sealed. You still have several chances to save some money, providing you act before the end of December. As with any tax strategies, be sure to seek out professional advice when it comes to your own particular circumstances.

Sell your losers. You may want to trigger some of your paper losses to offset capital gains you’ve already realized.

By selling stocks that are in the red before the end of the year, you can shelter tax that might otherwise be payable on capital gains you already made in 2009. Or, since those gains have been pretty hard to come by, you can trigger a refund of any 2006, 2007 or 2008 capital gains taxes you’ve already paid.

But you have to proceed with caution here, taking into account transaction costs, whether you’d still like to hold the stock longer-term and the “superficial loss” rules. The superficial loss rules prevent you from using the capital loss if you buy the same stock during the period that begins 30 days prior to the sale and ends 30 days after the sale. So, if you actually want to buy back the same investments, you’ll have to wait at least 30 days.

Either way, keep in mind that the Canada Revenue Agency looks at the settlement date, not when you actually made the trade. Since stocks are settled on a three-day basis, and the markets are closed on Christmas Day and Boxing Day, the last day to execute a qualifying order would be Thursday, December 24.

Contribute to a spousal RRSP. Contributing to an RRSP is almost always a no-brainer. But, if you’re using a spousal RRSP, making sure you contribute before the end of the year, and not in February, can give you greater flexibility down the road. Contributing in December will effectively reduce the waiting period before your spouse can make withdrawals without at least part of that withdrawal facing tax in your hands.

Why would you be taking money out? Well, you might find yourself unemployed, on disability leave, or on a maternity or paternity break.

If you contribute now, your spouse can dip into the RRSP on January 1, 2012 at the earliest without the money being taxed in your hands. If you wait until next January to contribute, your spouse will have to wait an additional year before being able to make that withdrawal without it being attributed back to you.

Reconsider non-RRSP fund purchases. Fund companies start to make yearend distributions in December. Many fund companies issue estimates in late November, so be sure to check with them or an advisor before jumping in.

Delay HBP withdrawals. If you qualify, you and your spouse can withdraw up to $20,000 tax-free from your RRSP towards the purchase of a principal residence. The home must be purchased by next October 1st though. Amounts withdrawn have to be repaid to your RRSP in 15 equal installments, starting with the second taxation year following the year of withdrawal.

If you’re planning on using the HBP this way and are getting set to close the deal, consider deferring your withdrawal until after December 31. This will extend the period for purchasing your home and repaying the amounts withdrawn by a year.

Make a final RRIF contribution. If you turn 71 this year, you have to wind up your RRSP by yearend. If you haven’t maximized your RRSP contributions in previous years and have unused RRSP room, you can make a lump sum contribution before shutting things down. The end of December is your deadline, however, not the 60-day period after the end of the year that normally applies to RRSPs.

The resulting tax deduction doesn’t have to be used on this year’s tax return, though. Instead, it can be used down the road, whenever it will be most beneficial for you in reducing taxable earnings.

John S. Bruce
Investment Advisor
Mackie Research Capital
Direct Line- 613-425-3732
Toll Free- 866-860-4190

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital Corporation (“MRCC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member-Canadian Investor Protection Fund / member-fonds canadien de protection des ├ępargnants.

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