Some year-end tax tips that could well work to your benefit

As 2017 comes to a close, look for ways to save income tax or claim tax credits before it is too late.

FINAL RESP MATCHING GRANT

2017 is the final year Saskatchewan is providing a matching Saskatchewan Advantage Grant for Education Savings (SAGES). If you make a $2,500 RESP contribution before Dec. 31, you can get a 10-per-cent SAGES grant of up to $250, in addition to the federal 20-per-cent CESG grant of up to $500. If you have carryforward grant room available, you should find cash to contribute up to $5,000 to the RESP to get $500 SAGES matching grants. Make your RESP deposit before Dec. 31.

TAX CUT

Saskatchewan residents will have slightly lower income tax brackets in 2018. All the bracket rates will drop by one-quarter of one per cent. For instance, the combined federal-provincial second-bracket rate drops from 33.25 per cent to 33.0 per cent for taxable incomes between $45,916 and $91,831.

Suppose you have a choice between taking $10,000 of income in December 2017 or January 2018, for example. There could be $25 of tax savings by deferring the income until January. Likewise, 2017 would be a better year to claim a deduction given the slightly higher 2017 tax rate compared to 2018.

Such a small rate cut alone may not be enough to motivate you to defer income from one year to the next. Indeed, some people might actually find it more advantageous to accelerate income to 2017. For instance, you might want to withdraw more out of your RRIF if you are only paying tax in the lowest tax bracket (25.75 per cent in Saskatchewan).

You could consider increasing your taxable income to about $45,000, especially if you might someday find yourself subject to a 50-per-cent clawback rate as a recipient of Guaranteed Income Supplement.

Alternatively, if your RRIF is large enough, taxes could be charged in your year of death at the top 48-per-cent rate if you have no spousal rollover opportunities.

DISTRIBUTE TRUST INCOME

Starting in 2016, tax rates for testamentary trusts jumped to the top-bracket rate of 48 per cent. As the end of 2017 draws near, trustees who manage those trusts are probably planning to distribute all or most of the trust’s 2017 investment income to beneficiaries since they may be able to pay tax at a much lower rate than 48 per cent.

AGE 65 PENSION CREDIT

If you reached 65 in 2017, claim the pension credit for 2017. You need to receive the type of income eligible for the credit. What qualifies as eligible pension income are RRIF withdrawals or benefits from an employer pension plan. Therefore, consider making a RRIF withdrawal of at least $2,000 before the end of 2017, knowing that the pension credit can eliminate most of the tax on that amount of pension income.

DELAY REPLENISHING TFSA

What if you made a large TFSA withdrawal during 2017? Now, suppose you have enough cash available to replenish your TFSA. It’s much safer to wait until 2018 to make your TFSA re-contribution, especially if you had maximized your TFSA contributions before making your withdrawal. Too many people have to pay the stiff one-per-cent-per-month TFSA over-contribution penalty by unwittingly replenishing the TFSA within the same year as the withdrawal. Terry McBride, a member of Advocis, works with Raymond James Ltd. The views of the author do not necessarily reflect those of Raymond James Ltd. Information is from sources believed reliable but cannot be guaranteed. This is provided for information only. We recommend that clients seek independent advice from a professional adviser on tax-related matters. Securities offered through Raymond James Ltd., member of the Canadian Investor Protection Fund. Insurance services offered through Raymond James Financial Planning Ltd., not a member of the Canadian Investor Protection Fund.