Contrary to popular belief, now is the time to get ready for the end of the year’s taxes instead of early next year just before the RRSP deadline.
Here are just a few ideas that you may find helpful.
If you are a small business that has payroll, and you do your own payroll, you can reconcile your payroll records up to this point so that the creation of the T4s will be easier and you will avoid any penalties and interest when you file your T4s in February.
The end of the year is always a good time to purchase assets for your company as you will receive the benefit of a half year’s worth of depreciation/capital cost allowance on your tax return.
If you are operating at a loss, you can elect not to take capital cost allowance on your tax return saving the deduction for a future year when you will have income.
Conversely, if you sold an asset and have capital gains, a portion of those capital gains may be deferred to a future year if the proceeds are not all receivable in the current year.
If you use your home as your principle place of business and you regularly meet clients at your home, you can write off a portion of your household expenses against your income.
So you would want to begin to organize and collect your household items.
As an individual, you would want to estimate the income that you will have by the end of the year so that you can take advantage of any deductions that may be available to you to reduce your taxable income and/or taxes payable.
Examples would be moving expenses, child care expenses, safety deposit box fees, charitable donations, political contributions, medical expenses, any eligible employment expenses, union dues, carrying charges on investments, public transit and children’s fitness and arts amounts.
If you have investments, you need to keep track of the purchases and sales of your investments as well as the return of capital amounts on any of the income trusts that you may have sold during the year as this will affect the adjusted cost base of your investment.
By being aware of your investments, you will know how many T3 and T5 slips that you can expect at the beginning of next year before you can complete your personal tax return.
Please note that investment income that is interest income is taxed at a higher personal rate than dividend income which has the benefit of the dividend tax credit.
You may want to consider moving some of those interest bearing investments over to dividends.
Subject to some limitations, the interest on loans taken out for investment purposes may be deductible.
The end of the year is the perfect time to make a charitable contribution because not only are you getting a tax break, but you are able to help the less fortunate.
Unfortunately, this is also the time that many charitable scams are created.
To protect yourself, you must make sure that the charity is a valid charity and that they print their charitable donation number on their receipts.
You can check a charity’s status on the CRA website under Charities Listings.
The rules of what you can donate to a registered charity have changed so that you can donate something other than cash.
If you rent out part of your home, you would want to collect your household expenses that pertain to the maintenance of that rental suite as those expenses can be written off against the rental income.
There is a form of income splitting available to seniors who receive the Canada Pension Plan that is based on the time spent living together and the length of time that you have contributed to the plan.
The seniors can apply to share each other’s Canada Pension.
There is also pension splitting available within the tax return that relates to pensions received other than the OAS and CPP.
The accountant will calculate the most beneficial pension split for the couple based on other factors of the income tax return.
RRSP deductions are based on 18 per cent of your earned income of the previous year.
The rule of thumb is that approx $10,000 in an RRSP contribution will save you $1,000 in taxes, so with a little planning you can calculate how much of an RRSP deduction you may need to offset your taxes payable.
The Canada Revenue Agency calculates the maximum amount of RRSP that you can deduct in the following year and publishes this amount on your notice of assessment.
Gabriele Banka is a Certified General Accountant and the owner of Banka & Company Inc.