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
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
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
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
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
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
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