Addressing personal assets
As a farm owner, you spend considerable time focused on your production and business operations. You’re always thinking about how to improve results, adopt new ways of farming, and meet your customers’ needs.
November 25, 2013 By | Paul R. Vaillancourt CFP CLU CHS and CPCA
What about your personal assets and their yields? When was the last time that you thought about your savings or how much money you need to fulfil your dreams and eventually retire? Are you getting the returns that you should? Are you paying the least amount of taxes possible? Perhaps it is time to look at the things that you should take care of now before the year is up.
Maximize children and grandchildren’s
Registered Education Savings Plans (RESP)
You want to do all you can to provide your child or grandchild with opportunities to succeed – to afford the college or university of their choice, follow their dream career, and attain the earning
power they desire. A post-secondary education will undeniably help them get there. A contribution of $5,000 to an RESP before Dec. 31 may generate up to $1,000 in basic Canada Education
Savings Grant from the government – a 20 per cent return.
Top up your Tax-Free Savings Account
A Tax-Free Savings Account can benefit any Canadian (18 years of age or older) to save for a short- or long-term goal. You can contribute up to $5,500 per year and watch your savings grow without being subject to tax throughout your lifetime. Your unused contribution room accumulates year after year.
If you haven’t opened an account yet, you can contribute up to $25,500 in 2013 and reduce taxes on your non-registered investments. If you have contributed regularly, set aside money now and make your full contribution come Jan. 1.
Contribute to your RRSP
One of the main advantages of contributing to a RRSP is the deferral of tax on investment income and capital gains. In order to take maximum advantage of this benefit, contribute to an RRSP as early as possible. Remember, while most Canadians have until March 1, 2014, to make RRSP contributions that can be deducted on this year’s tax return, those turning 71 this year must make their RRSP contribution by Dec. 31, 2013.
Convert your RRSP to an RRIF
If you are turning 71 years old this year, your RRSP has to be collapsed by Dec. 31 by converting it to a Registered Retirement Income Fund (RRIF). An RRIF funds your retirement by providing payouts. Payouts are fully taxable as income to you, but the remainder of the RRIF assets continues to grow and accrue income on a tax-deferred basis. The RRIF payment should be based on the age of the younger spouse, thereby reducing the amount of the payout and the taxes payable. You should consider an annual payout and make the withdrawal on Dec. 31 of each year to maximize the tax-deferred growth.
Trigger capital gains or capital losses
If you anticipate capital gains from your non-registered investments, consider triggering losses by selling your funds that are at a loss. The “sale” must be settled by Dec. 31 in order to be applied against this year’s capital gains.
Make charitable donations
If you want your donations to be eligible for a tax credit this year, you need to contribute by Dec. 31. A charitable donation reduces provincial tax and federal tax. For example, if you’re an Ontario resident and you donate $1,000, your total federal and provincial tax credits would be $361.38, or 36.38 per cent in tax savings. However, in addition, Ontario applies a surtax. For 2013, an
Ontario resident who had taxable income of at least $104,000 (and thus would be subject to the surtax) would receive tax savings on a charitable donation of 46.41 per cent. Combine your donations with your spouse to maximize the credit.
Pay certain expenses
Some expenses are eligible for credits or deductions provided that they are paid before Dec. 31. These expenses include moving expenses, child-care payments, spousal support, tuition fees, union or professional dues, interest on student loans, medical expenses, investment counsel fees, and safety deposit box fees. Make sure to pay these before year-end.
Give non-cash gifts to employees
As a business owner, you can give an employee up to two “non-cash” gifts per year, and up to two “non-cash” awards per year, as long as the total cost (including tax) does not exceed $500. The gifts are not a taxable benefit to the employee. The cost of the gifts is a tax-deductible expense for the employer.
Taxes are a fact of life – but keeping more of what you earn by paying less in taxes should be an important component of your overall financial plan. Your financial planner can help you identify and implement the most effective tax-smart strategies for your situation.
This is a general source of information only. It is not intended to provide personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities. Paul Vaillancourt is solely responsible for its content. For more information on this topic or any other financial matter, please contact an Investors Group Consultant.