Planning for the New Year

As cool winds begin to blow and the familiar honk of Canadian Geese fills the air, we’re reminded that the days in this year are numbered and a new year is just around the bend.

At CWB Wealth Management, we’re working with our clients to ensure they are aware of these important year-end financial planning tips.

TAX-FREE SAVINGS ACCOUNT WITHDRAWALS

Unlike an RRSP (where you cannot put money back into the account unless you have the contribution room available), a TFSA allows you to withdraw money from the account and then put it back in the future. The only stipulation is that you cannot replace the amount withdrawn in the same calendar year from which it was removed. So, if you anticipate the need to make a withdrawal from the TFSA in the first half of the next year, it may be beneficial to do so while still in the calendar year 2017. This way, you can recontribute the withdrawn amount without having to wait for 2019.

TFSA CONTRIBUTIONS

At the start of 2018, the TFSA contribution limit will increase by another $5,500 (pending confirmation by Government of Canada). This means that, by January 1st, 2018, the maximum amount anyone can contribute to a TFSA will be $57,500. Money invested in the TFSA will grow tax-free, and so, the sooner you invest, the longer it has to grow in a zero tax environment. Theoretically, the longer money can remain invested the greater your potential for return.

If you’re self-employed or a small business owner, you may wish to consider accelerating the purchase of new business equipment or office furniture that you may be planning to purchase in 2018. Under the “half-year rule”, you are permitted to deduct one half of a full year’s tax depreciation (capital cost allowance) in 2017, even if you bought it on the last day of the year.

For 2018, you can then claim a full year’s depreciation.

RRSP CONTRIBUTIONS

You have until March 1, 2018, to make RRSP contributions for the 2017 tax year. But why wait? Contributions can be made early in, and throughout, the 2017 calendar year.

Making contributions as early as possible will maximize tax-deferred growth. Your RRSP contribution limit for 2017 is 18 per cent of earned income you reported on your tax return in the previous year, up to a maximum of $26,010. If you have a company pension plan, your RRSP contribution limit is reduced by your “pension adjustment”. Be sure to check your prior year Notice of Assessment as it will also include any unused contribution room accumulated from prior years.

IF YOU TURNED 71 IN 2017

You have until December 31 to make any final contributions to your RRSP before converting it into a RRIF. If you have earned income in 2017 that will generate RRSP contribution room for 2018, it may be worthwhile to make a one-time over-contribution to your RRSP in December before converting to a RRIF. A penalty tax of 1 per cent on the over-contribution will apply for December 2017, but new RRSP room will open up on January 1, 2018, thus eliminating the penalty tax in January 2018. You can then choose to deduct the over-contributed amount on your 2018 (or a future year’s) return.

You can also still use your contribution room after 2017 to make contributions to a spousal RRSP until the end of the year your spouse or partner turns 71.

TAX-LOSS SELLING

If you have realized capital gains in your taxable portfolio, sell investments with accrued losses at year end to offset taxable gains. Net capital losses that cannot be used currently may be carried back three years, or carried forward indefinitely to offset net capital gains.

In order for your loss to be immediately available for 2017 (or one of the prior three years), the settlement must take place in 2017, which means the trade date must be no later than December 27, 2017. As a side note, be mindful of the impact that foreign currency may have on foreign investments. These transactions could include currency translations that affect your net gain/loss.

A CWB wealth management specialist/advisor can help walk you through these and other planning techniques and work in-step with your team of professional advisors. Like all good planning, considering all factors is important, and reviewing your tax situation goes hand-inhand with your overall wealth management strategy.