2016 Year End Tax Tips
As we move towards the holiday season now is a good time to review your finances and take advantage of tax planning ideas to reduce your taxes for 2016. The following are some ideas that are worth considering:
1. Make RRSP contributions if you are in a high tax bracket. The RRSP contribution deadline is March 1 2017 - however the earlier you make the contribution the more tax deferred growth you can have.
2. If you make regular monthly RRSP contributions through the year you can complete form T1213 to get a tax refund on every paycheque instead of waiting until the end of the year.
3. Delay RRSP withdrawal under the Home Buyer's Plan or Life Long Learning until 2017 so that you can delay repayment by 1 year.
4. Convert your RRSP into a RRIF by age 71. It may be advantageous to make an over contribution in the year you turn 71 so that you can deduct the contribution in 2017 assuming you will have income. If you spouse is younger than age 71 you can still contribute into a spousal RRSP.
5. Make TFSA contributions to shelter investment income from taxes. If you have not yet opened a TFSA and have been over age 18 since 2009 you can contribute a catchup amount of up to $46,500. You will have an additional contribution room of $5,500 as of January 1 2017. You can invest in stocks, mutual funds, GICs and saving accounts.
6. Effective January 1 2017, switches from corporate class mutual funds in a non registered account will result in a taxable event. If you need to rebalance your investment portfolio - now is a good time if you own corporate class mutual funds.
7. Utilize tax loss selling to use investment loses incurred during the year to offset current year capital gains and/or gains from the past 3 years. To recognize the loss in 2016 your trade date must be on or before December 23 2016.
8. Use a prescribed rate loan to split investment income with a spouse or child at a lower tax bracket. The currently prescribed interest rate is 1% and this rate is locked in for the duration of the loan. You must remember to pay the interest for each calendar year by January 30 of the following year.
9. This year is the final year that you can claim the child fitness and children's arts credits. If you don't spend enough to maximize these credits of $500 and $250 per child - consider prepaying for 2017 expenses.
10. Make RESP contributions to help fund your child's education and receive free money from the government. The basic grant is 20% of your contribution up to a lifetime total of $7,200.
11. The new home accessibility tax credit can help seniors and people with disabilities. The tax credit is equal to 15% of up to $10,000 worth of renovations
12. Contribute to an RDSP - this is for people who qualify for the disability tax credit. The government gives generous grants for every dollar you contribute.
13. Make charitable donations by December 31 2016 by either cash or an in kind transfer of a portion of your investment portfolio. In kind donations will eliminate any potential capital gains accrued by the investments.
14. The School Supplies tax credit is a new refundable tax credit based on 15% of up to $1,000 of qualifying school supplies in the year.
15. If you sell your house in 2016 you will need to file the principal resident exemption form with your tax return.
16. Effective January 1 2017 there is a higher Ontario land transfer tax rebate for first time home buyers (up from $2,000 to $4,000). This means that there will not be any land transfer taxes for a home purchase less than $368,000. On the flip side anyone who buys a home with a price of $2 million dollars or greater will need to pay 0.5% more in land transfer taxes on the portion in excess of $2 million dollars.
I hope that the above can save you some money. Financial planning is a year round affair. Make sure you re-visit your financial plan on a regular basis.
