End Of Year Tax Tips for 2010

Posted Thursday, December 16th, 2010. Filed Under Financial Empowerment

I received this email from Warren Blatt, one of my financial advisors. It was helpful and yes does pertain to Canada HOWEVER please note that many countries work on the same premise that to receive tax benefits for that year (2010) you must have them in place by December 31, 2010 (or specified time).

The information provided comes from
Doug Carroll JD, LLM (Tax), CFP, TEP
Vice President, Tax and Estate Planning

Tax & Estate matters
Last 10 tax tips for 2010

This has been slightly adapted: year-end tax planning checklist to give plenty of lead-time. These tips can be time-sensitive matters that must be addressed before the end of the calendar year, and in many cases needs to be set in motion well in advance of that final stroke of midnight.

1. Capital gains/loss selling – For realization of capital gain or losses on mutual funds, allow the trade date plus three business days to settle by December 31, 2010, which means no later than December 24th and sometimes as early as December 22nd. In 2010, the last trade date is Friday, December 24th.

2. Charitable donations – In order to benefit from the donation tax credit in 2010, the donation needs to be made prior to calendar year-end: Dec. 31st. For transfers of listed securities (such as mutual funds) to a registered charity or private foundation, tax on any capital gain otherwise arising from such disposition will effectively be eliminated. While the value of the gift is determined at the date of transfer, it is the date of the settlement (see #1) that determines the year in which the donation has occurred.

3. TFSA withdrawals – The formula for calculating TFSA contribution room includes withdrawals made in the previous calendar year (i.e. withdrawal in 2009 for 2010). Therefore, if you are considering a withdrawal for the first quarter of 2011, you may want to consider making that withdrawal before the end of 2010. Therefore, in this way the contribution room credit will allow for re-contribution during 2011 (assuming that cash is available for the purpose) rather than having to wait until 2012. For more information on the tax rules and other consideration, contact your advisor. One is the provider of this information: Invesco Trimark Tax & Estate info Service – 1800- 874-6275 or advisor.invescotrimark.com

4. Spousal RRSP contributions – Income attribution to a contributor spouse will apply if the receiving spouse makes a withdrawal before the end of the second calendar year following contribution. The rule works on a last-in/first-out basis counting from the actual date of contribution, not from the tax -filing year for which the related deduction may have been claimed. For example, a contribution in January 2011 entitles the contributor to a deduction against 2010 income, but will be subject to attribution if withdrawn on or before December 31st, 2013; if that same contribution had been made in December 2010, attribution would apply only if the withdrawal is made on or before December 31, 2012.

5. Final RRSP contributions for person age 71 – A person may make a final RRSP contribution by December 31st of the calendar year that he/she turns 71. Take special note that the usual rule allowing contributions in the first 60 days of the year following the calendar year is not available. (i.e. 2011)

6. Final spousal RRSP contribution where spouse in under 72 yrs. – Despite the preceding rule, a person over age 71 may use carried-forward contribution room to contribute to a spousal RRSP so long as the spouse is under 72. Similar to that preceding rule, contributions must be made by December 31st of the calendar year the spouse turns 71.

7. RRSP/RRIF rollover on death – The plan’s value at the end of the exempt period (i.e. the period ending on December 31st of the year following the year of death) is used to determine the amount of RRSP/RRIF proceeds that qualified beneficiaries (generally spouses, related dependent minor children and dependent disabled children) can transfer into their own RRSP/RRIF/annuity a tax-deferred basis. If a death occurred in 2009, the exempt period runs out at the end of 2010.

8. TFSA rollover on death to successor holder (spouse) – The exempt period entitling a spouse to contribute to characterize received funds as a TFSA runs from death to December 31st of the year following the year of the death. For a death occurring in 2009 for which there was no valid successor account holder designation in place, an election will have to be made by the deceased’s estate and the receiving spouse before the end of 2010.

9. Spousal prescribed rate loans – This one is really a year-end-plus-30 days reminder, being the date by which interest must be paid by a borrower spouse to a lender spouse in order to escape the spousal income attribution rules. Be careful not to mistake the deadline as simply being the end of January, which would be 31 days. This error could be especially disappointing for spouses who may have taken advantage of this year’s historic low 1% prescribed rate, as such loans are forever offside from the date an interest deadline is missed.

10. Execute a Will – while the execution of a Will may not be a year-end tax-planning task in itself – the estate planning process will often highlight issues that have year-end implications. In turn, the Will can be drafted to facilitate more effective estate management through the inclusions of necessary trust powers, such as the ability to make appropriate income Tax Act (Canada) elections.

** The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting or professional advice. Readers should consult their own accountants and/or lawyers for advice on the specific circumstances before taking action. Commissions, trailing commissions, management fees and expenses may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

Invesco Trimark
5140 Younger Street, Suite 900
Toronto, Ontario M2N 6X7

Telephone: 416.590.9855 or 1.800.874.6275
Facsimile: 416.590.9868 or 1.800.631.7008


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