With December upon us, here are a number of tax considerations and deadlines to remember for the 2019 tax year. Please note that December 31 is a Tuesday this year.
Payments, Expenses and Other Transactions
1. Tax-Loss Selling
Tax-loss selling entails selling investments with unrealized capital losses before yearend to offset capital gains realized during the year. Any remaining unused capital losses can be carried over to offset capital gains from the three preceding years or in any future year. While this strategy may be advantageous from a tax perspective, ensure that tax-loss selling makes sense from an investment perspective as well.
To ensure that your capital losses can be reported in the 2019 tax year, trades on Canadian securities exchanges must be placed no later than December 27, 2019, as trades typically take two business days to settle. Different dates may apply to foreign exchanges.
Beware of “superficial loss” rules. The capital loss on an investment will be denied if you buy an identical investment during the period that begins 30 days before and ends 30 days after the sale settlement date, and you still own that investment at the end of the period. These rules also apply if the identical investment is purchased by or transferred to your RRSP, RRIF, TFSA, spouse or a company controlled by you or your spouse.
If you are caught by the superficial loss rules, the denied loss amount is generally added to the adjusted cost base of the identical investment purchased, in essence deferring the loss until the ultimate year of disposition.
2. Carrying Charges
Investment-related expenses, such as fees to manage non-registered accounts and charges and interest paid on money borrowed for most investment purposes (other than in registered accounts) must be paid by December 31 to be deductible in 2019.
Contributions to Registered Plans
3. Registered Retirement Savings Plans (RRSPs)
The maximum RRSP contribution limit for 2019 is $26,500. To view your 2019 RRSP contribution room, you can check your 2018 CRA Notice of Assessment, call the CRA's personal telephone services or log into the CRA’s My Account online. If you have a considerable amount of contribution room or if you expect to be in a higher tax bracket in the near future, consider making the maximum contribution this year, but deducting the contribution over multiple years, depending on your expected taxable income and credits.
4. RRSP Contributions After Age 71
Although you can no longer contribute to your own RRSP after December 31 of the year in which you turn 71, you can contribute to a spousal RRSP if you still have contribution room and your spouse or common-law partner is not older than 71 in the year of contribution.
5. Registered Education Savings Plans (RESPs)
The federal government provides a 20% Canada Education Savings Grant (CESG) of up to $500 annually ($1,000 annually, if catching-up past unused CESG room) for beneficiaries age 17 or younger at the end of the calendar year up to a lifetime limit of $7,200 per beneficiary.
If your child turned 15 in 2019 and you have not contributed a minimum of $2,000 or at least $100 per year in any four years to the RESP, then December 31, 2019, is your last chance to contribute enough funds to maintain CESG eligibility on future contributions in 2020 and 2021 (ages 16-17).
The enhanced CESG (eCESG) is available to moderate-income families on the first $500 of annual contributions. Since eCESGs cannot be carried forward, contribute by December 31 if eligible.
6. Registered Disability Savings Plans (RDSPs)
RDSPs are tax-deferred savings plans that you can use to help provide long-term savings for an individual who is eligible for the disability tax credit. Lifetime contributions of up to $200,000 can be made by anyone until the beneficiary turns 59, but the contributions are not tax deductible.
The federal government provides assistance in the form of Canada Disability Savings Grants (CDSGs) and Bonds (CDSBs) until the beneficiary turns 49:
- CDSGs up to $70,000 are provided on a matching basis, based on the contribution amount and the beneficiary’s family income, subject to annual limits.
- CDSBs up to a lifetime limit of $20,000 are provided to low-income beneficiaries. No contributions are required to receive the bond, subject to annual limits.
Interested persons should consider opening/contributing to an RDSP by December 31 in order to receive government assistance for the current year and up to 10 previous calendar years, particularly if the beneficiary is age 49 by December 31, 2019.
7. Tax-Free Savings Accounts (TFSAs)
There is no deadline for TFSA contributions, which can be made at any age, and unused contribution room is carried forward to future years. If you were eligible for a TFSA in every year since 2009 but have never contributed to one, you may have up to $63,500 in TFSA contribution room available for 2019.
If you plan to withdraw from a TFSA in the near future, consider making the withdrawal in December 2019 rather than in 2020. Since TFSA withdrawals increase your contribution room the following calendar year, this will enable an early re-contribution, as early as January 1, 2020, rather than having to wait until 2021.
8. Income Splitting
The deadline to pay 2019 interest on spousal loans is January 30, 2020. Income, such as RRIF withdrawals once age 65 or older, must be received by December 31, 2019, if you wish to allocate a portion of the income to your spouse or common-law partner for pension income splitting. Depending on your spouse’s age and income sources, this may help maximize your 2019 pension income credits.
Odlum Brown Financial Services Limited is a wholly owned subsidiary of Odlum Brown Limited, offering life insurance products, retirement, estate and financial planning exclusively to Odlum Brown clients.
The information contained herein is for general information purposes only and is not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard. Many factors unknown to Odlum Brown Financial Services Limited may affect the applicability of any matter discussed herein to your particular circumstances. You should consult directly with your financial advisor before acting on any matter discussed herein. Individual situations may vary.