We would like to extend our best wishes to you and your family for a wonderful Christmas and a happy and healthy 2008. We would like to thank for your continued confidence in our services and advice and look forward to seeing you in the New Year.
Below you will find a timely article on end of the year tax planning.
All the best,
Kevin & Ellen
December tax-planning reminders
December 13, 2007 | Mark Noble
Prudent tax planning in December is key to creating a worry-free tax filing for April, according to a pair of tax experts.
The importance of tax planning in December is twofold. First, as the end of the year approaches, so do the deadlines that will determine the eligibility of expenditures and deductions to be included in your 2007 tax filing. Not making these deadlines could create an inefficient 2007 tax plan since clients will not be able to take advantage of deductions until their 2008 tax filing. Second, by December, advisors should have a clear picture of their clients' 2007 tax situation.
"December is the last chance for a number of planning initiatives. Not to say there is nothing you can do to be efficient at the time of filing, but for the most part, your opportunities are gone by the end of the calendar year," says John Waters, manager of tax planning at BMO Nesbitt Burns.
Waters notes that by December, advisors should have a very good sense of what their clients' income and capital gains for 2007. So in the last few days of the month, they should be looking to complete transactions, such as selling securities with capital losses, that can maximize the tax efficiency of their clients' April filing.
Gena Katz, executive director of Ernst and Young's tax group, says good record-keeping makes selling a security for a loss relatively straightforward.
"If people keep reasonable records, they'll know what they sold at the end of the year and what their position is right now, so they know if they're in a net loss or net gain position," she says. "Certainly they should have records from prior years, which allows them to determine what their gains were."
For investors who are planning to take advantage of capital losses, Waters suggests they sell those securities by December 21, 2007, as this gives at least three business days for the transaction to be completed before the New Year.
Clients can also donate publicly traded securities to charity, creating further tax deductions and offsetting capital gains taxes. Katz says there will generally be no income inclusion in respect to the accrued gain and the full value of the gifted securities will be eligible for a donation credit. This must be done by December 31 to be eligible for the 2007 tax return.
But there are some actions that should be put off. Wait until the new year to buy securities or funds that provide annual distributions, Katz says. Generally, distributions are made in December and must be included in that year's tax return. In effect, the investor would be paying tax on his or her original capital, since it's doubtful there would be much growth in the investment if it's only recently been purchased.
"If they purchase a fund just before the distribution, the price of the fund will go up because of the accrued income. They will then get a distribution, which is taxable immediately, on a portion of their capital," she says. "If they wait until after the distribution, the price will go down, so they'll pay less."
Another important thing for clients to remember is to pay expenses by the end of the calendar year to benefit from their deduction in the 2007 tax return. These may include items like tuition, medical expenses, alimony payments and childcare expenses.
For self-employed or non-incorporated business owners who are intending to purchase assets in the near future, Katz says they should consider shopping early to claim depreciation for 2007 (although it's only half of the regular depreciation amount).
Katz also notes December can be an ideal time to purchase tax shelters. Although, she warns, investors need to be careful since these are heavily scrutinized by the Canada Revenue Agency. She says to be on guard for any tax shelters that use charitable gifting arrangements.
"The Canada Revenue Agency will assess every single one of them," she says. "There are good tax shelters accepted by tax authorities. This would be something like flow-through shares. They can be risky since they are invested in the resource sector, but the benefit is that the investor will get a significant tax deduction up front. If it ends up being a good investment then there's money to be made down the way as well."
Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com
(12/13/07)
