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| Adrian Mastracci, president of KCM Wealth Management, says “Take an in-depth look at the state of your finances before the close of 2005. Perhaps, your nestegg can be improved." |
Vancouver, BC (November 23, 2005): The close of 2005 is fast approaching. Hence, some year-end tax planning considerations are in order:
Franklin D. Roosevelt once said, "Taxes, after all, are dues that we pay for the privileges of membership in an organized society."
Adrian Mastracci, investment counsel with Vancouver’s "fee-only" KCM Wealth Management, comments, “Take an in-depth look at the state of your finances before the close of 2005. Perhaps, your nestegg can be improved.”
Here are some measures that may change the tax load:
1. Tax loss selling
If you entertain tax loss selling, don't just sell to realize a loss. Take appropriate action in context of your overall portfolio and how the individual security fits your investment plan.
Try to finish the tax loss selling by mid December. If all the losses cannot be used in 2005, you may carry them back for up to three years or forward until they are used up.
2. December distributions
Take into account the December mutual fund distributions of gains and losses when estimating your 2005 income taxes payable.
You get to pay tax on the gains without receiving the cash.
3. Name your beneficiaries
Review your named beneficiaries for all your accounts. In particular, the RRSP, DPSP, IPP, RRIF, locked-in accounts, pension plans. This has special implications for those who have gone through a separation, divorce, new marriage or a common law relationship.
Also, review your will provisions. Especially, if you have young children. Start with the beneficiaries and the estate allocations. Then determine if the executors, guardians and trustees still want the thankless duties and responsibilities.
Those with a more involved estate may want to review the need for estate freezing.
4. RESP for the youngsters
The 2005 RESP contributions must be made by December 31. The annual maximum is $4,000 per child, to a lifetime maximum of $42,000.
Explore a family RESP plan for two or more children. RESP deposits are not deductible for tax purposes. The federal government assists with a grant of up to $400 per child.
5. Donating securities to a charity
Those who will be selling securities and making a charitable contribution in 2005 may consider donating the eligible securities directly to the registered charity.
The incentive is that the capital gains inclusion rate on the donated securities is reduced from 50% to 25%. The donation credit is based on the market values of the donated securities.
6. Claim the amounts paid
Ensure that you claim all deductible amounts paid in calendar 2005. These include interest costs, professional dues, alimony, maintenance, child care costs, investment counsel fees, safety deposit box and accounting fees.
Some of the outlays will result in tax credits on your 2005 income tax return. Such as tuition paid, political contributions, charitable donations and medical expenses.
7. Prescribed rate loans to a spouse
Consider lending money to a spouse in a lower tax bracket. Interest on funds loaned must be charged at least at the CRA prescribed rate. The rate to December 31, 2005 is 3%. The recipient spouse invests the funds and reports the investment income.
However, the recipient must pay the interest to the lender spouse not later than January 30 of each year following the loan. Documentation is required as evidence of the loan between spouses. The lending spouse reports the 3% loan interest income.
8. Bonus deferral
Those fortunate to be receiving a bonus in the near future, may ask the employer to consider deferring its payment until January 2006.
That will defer the income tax on the bonus for another year.
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