Accounting fees and legal fees
Certain accounting or legal fees such as the cost of representation on tax disputes are deductible in the year paid. If you have these costs be sure to pay them before the end of the year.
Charitable or political donations
If you are planning to give money to a charity or political party, make sure the gift is made before December 31, 2015 to ensure you can claim the tax credit on your 2015 return.
If you have equipment you are planning to purchase for your business early next year, consider purchasing it before December 31, 2015 or before your corporate year end as applicable. The tax depreciation only starts when the equipment is available for use in your business.
Ensure that any desired distributions to or from a family trust are made by December 31, 2015. If distributions are planned, ensure appropriate dividends are paid through the Trust by year end. Payments by cheques deposited and distributed before the end of the year are required, unless detailed steps are completed. If you are travelling at Christmas, see your Crowe MacKay tax advisor beforehand.
If you are a self-employed individual using a home office as your principal (more than 50%) place of business, or exclusively for earning business income and on a regular and continuous basis for meeting clients or customers, then you may be able to deduct home expenses related to the office space. Such expenses include the business portion of rent, mortgage interest, property taxes, utilities, insurance, repairs, and telecommunications.
If you have realized capital gains in the current year, consider selling investments with unrealized capital losses before year end. This strategy will reduce your tax bill as capital losses can be offset against capital gains. The key is to trigger these losses in 2015 so the last settlement day for 2015 must be considered. Where a loss has been triggered, you or an affiliated party cannot reacquire the same or an identical investment within 30 days of the sale or the loss will be disallowed. We recommend that you consult your investment advisor prior to undertaking this strategy.
Old Age Security (OAS) claw back
If your net income in 2015 is over $72,809, you are required to repay some or all of your OAS benefits. This "claw back" is the lesser of your OAS benefits received in the year and 15% of your net income that is over $72,809. The OAS claw back is calculated solely on your net income and is not affected by your spouse's income. Note that if your net income is $118,055 or greater in 2015 (and you are not receiving an increased OAS entitlement – see below), you will be required to repay all of your OAS benefits. If you are eligible to receive OAS but are subject to a full claw back, you may consider deferring receiving OAS until a year in which the claw back is reduced or eliminated. Deferring the receipt of OAS will increase your OAS entitlement when you begin to collect it and it will increase your maximum annual net income to receive OAS. Contact your Crowe MacKay tax advisor if you have any questions about OAS.
If you are earning eligible pension income (excluding Canada Pension Plan, Old Age Security and certain foreign pension income), you may be able to split up to 50% of this income with your spouse or common-law partner. This pension income-splitting may be done by filing a joint election with your income tax return and can result in significant tax savings if your spouse or common-law partner is in a lower tax bracket. Your spouse or common-law partner may also be able to claim the pension income amount tax credit on the income that he/she is deemed to have received (see below).
Pension tax credit
A $2,000 pension tax credit is available if you earn eligible pension income, which typically includes income from a registered pension plan, income from a registered retirement income fund (RRIF) and annuity payments from an RRSP. If you are 65 years or older and are not receiving any pension income, you may consider converting a portion of your RRSP to a RRIF in order to receive eligible pension income on which the pension tax credit can be claimed.
Registered Disability Savings Plan (RDSP)
The RDSP is a registered long-term savings plan specific to people with disabilities who are eligible for the disability tax credit. Contributions may be made by the beneficiary, a family member, or by any other authorized contributor. There is no annual limit on contributions; however, there is a lifetime contribution limit of $200,000.
Although contributions to the plan are not tax-deductible, income earned inside the plan is not taxed until it is withdrawn by the beneficiary. Contributions can be made until the end of the year in which the beneficiary turns 59 and payments from the RDSP must begin by the end of the year in which the beneficiary turns 60.
There are currently two income-based programs in place to enhance the funds that are contributed to the RDSP. The Canada Disability Savings Grant Program (CDSG), and the Canada Disability Savings Bond Program (CDSB).
The rules related to RDSPs can be complex and we recommend you speak with your Crowe MacKay Tax advisor if you believe this program may be right for you or a family member.
Registered Education Savings Plans (RESP)
Make any contributions to an RESP before December 31st to qualify for any 2015 grants you may be eligible for. As in years past, the government will pay a Canada Education Savings Grant of 20% of annual contributions you make to all eligible RESPs for a qualifying beneficiary to a maximum of $500 in respect of each beneficiary. Additional grants are possible where there is unused grant room from a previous year and for families with lower net income. Canada Education Savings Grants have a lifetime maximum of $7,200.
Registered Retirement Savings Plan (RRSP)
Regular and spousal contributions for the 2015 taxation year may be made up to February 29th, 2016. Similarly, if you must repay a portion of your Home Buyers Plan or your Lifelong Learning Plan, payments must be made by that same date.
Overall tax savings are most significant for individuals who are currently in a high tax bracket but will be in a lower bracket when the RRSP money is withdrawn. We suggest that you contact your Crowe MacKay tax advisor if you have any questions about RRSPs.
The RRSP contribution limit for 2015 is $24,930.
If you have a shareholder loan from your company that has been outstanding since the December 31st, 2014 year end (i.e. it is at risk of showing up as a debit balance on 2 consecutive balance sheets), ensure it is repaid by December 31, 2015 or earlier. Consult your Crowe MacKay tax advisor to determine if the amount must be repaid and to discuss repayment methods such as dividends or net wage compensation.
If you have spousal loans, ensure the interest is paid by January 30, 2016 by a "documented" method such as a deposited cheque. These loans (with interest as low as 1%) are typically used for income-splitting where families have large investment pools (generally over $1M).
Tax Free Saving Account (TFSA)
Canadian residents age 18 and over are eligible to open a TFSA. Income earned in a TFSA is not taxable as it is earned nor is it taxable when withdrawn from the account. Contributions to a TFSA are not tax deductible.
For 2015, the maximum contribution is $10,000 plus any outstanding contribution room carried forward. The cumulative contribution room granted to Canadians since the start of the TFSA program is $41,000 to December 31, 2015. Please refer to your 2014 Notice of Assessment and/or your investment advisor for the maximum contribution you may make for 2015.
The contribution limit for 2016 has yet to be announced. The Liberal Party previously stated its plan to reduce the limit back to $5,500 (see Tax: What is New for 2015 and 2016). Although the federal government has not provided recent comments on the matter, members of the investment community have suggested that for the year 2015, individuals continue to adhere to the $10,000 limit announced earlier this year as it is unlikely that any reduction to the limit will be retroactive.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.