The annual tax-filing ritual is approaching. As our tax system gets ever more complicated, it's no longer prudent to leave your planning and preparation to the week before filing deadline on April 30. So get a head start on assembling all the slips and back-up documentation you'll need to get those lucrative credits and deductions. Here are some of the best tax-saving tips for investors.

Make the most of your losses

Did you trigger any investment losses in 2015? If so, you can file a "loss carryback" and claim the losses against previous years' capital gains. But before you do, you must use your losses to offset 2015 capital gains, if any, before you can go back to prior years.

In addition to investment losses, there are other loss candidates. These could include, for example, bad loans such as junk bonds that won't be repaid, or a "no-good" advance you made to your company or a business associate – in other words, money you won't get back. Another example would be investments in companies that have gone bankrupt or are now worthless and out of business.

  • Money-losing bonds. If you invested in a bond at a premium price over its par value (that is, if the coupon rate on the bond was higher than the prevailing interest rates when you purchased the bond), and if rates have since risen, the price of your bond will have declined. If so, and the investment is in a non-registered account, there will probably be a capital loss if you hold the bond to maturity or if you sell the bond after its price has fallen (bond prices move inversely to interest rate movements, so if rates go up, bond prices fall).
  • How to use mutual fund losses. If your mutual fund is down, one way to trigger a tax loss is to convert to another fund within the fund family, for example, from a Canadian equity to a U.S. equity or money market fund. But remember that tax losses cannot be claimed if the investment is in your RRSP.

Some mutual funds have been set up under a corporate umbrella so that when this conversion takes place there is no gain or loss recognized for tax purposes. Of course, the idea behind this type of structure is to defer capital gains. But it would negate your effort to generate a tax loss. Check this out with the fund company or your advisor before you make the conversion.

Note that such structures do not exist for exchange-traded funds. Capital gains and losses on ETFs are treated in the same way as gains or losses on publicly traded shares.

Claim reserves for capital gains

If you have sold assets in 2015 and realized a capital gain, in some cases you may be able to claim a so-called "capital gains reserve" to defer recognition of that capital gain for tax purposes.

You can claim a reserve if you sell a property but do not receive all of the proceeds right away. An example of this would be selling appreciated shares and taking back a promissory note as consideration.

Under the reserve rules, you need only recognize one fifth of the gain in the current and each later year (cumulatively), so that the entire capital gain will be accounted for by the fourth year after the year of sale. If you are not able to claim a reserve because you received all of the proceeds immediately on the sale, look to see if you have a capital loss carryforward balance from previous years (see above) that can offset your capital gain.

Claim interest on disappearing investments

If you have borrowed money for an investment or business that has been sold at a loss or gone belly-up, but are still stuck with making interest payments, that interest may continue to be deductible. (If you have managed to salvage some proceeds and the money is put to personal use rather than being re-invested, a portion of your continuing interest charges won't be deductible.)

Real estate is an exception to this rule. However, the exception applies only if the real estate is "directly held," so the interest charges should continue to be deductible if, for example, the real estate was held in a partnership or a company. Also, a 1996 Supreme Court ruling (Tennant v. The Queen) validates continuing interest deductions for real estate if you have managed to salvage some proceeds from the investment that are re-invested.

Defer tax on interest

You can defer tax on an interest-bearing investment for one year after its purchase, unless the interest is paid or credited to your account in the meantime.

In general, for investments on which interest payments are deferred (e.g., payments that occur once or twice a year), it may make sense to make the purchase early in the New Year, rather than late in the current year, since this means that at least a portion of the interest payments will be "kicked over" to the next year.

Previously published in The Fund Library on Thursday, February 4, 2016.

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.