Year-End Tax Planning: Benefit From Your Losses & Gains

With the arrival of cooler weather, the end of 2024 is already in sight. This

may be an opportune time to consider tax-planning strategies before

year end. If you are thinking of making portfolio adjustments, there may

be a way to gain from your losses — or further benefit from your gains!

Gain From Your Losses Through Tax-Loss Harvesting — Generally,

an investment held in a non-registered account that is sold for less than

its original cost will result in a capital loss. For tax purposes, the capital

loss can be used to offset taxable capital gains realized during the year

to reduce your current tax liability. If you don’t have sufficient taxable

capital gains to offset the loss, the net capital loss can be carried back to

any of the previous three taxation years to offset realized capital gains, or

carried forward to use against future realized capital gains.

Some have asked: Does an increased capital gains inclusion rate affect

the loss carryback/carryforward rules?* Net capital losses realized in

previous tax years are deductible against current-year taxable capital

gains by adjusting their value to reflect the inclusion rate of the capital

gain being offset. So, a capital loss realized when the 1/2 inclusion rate

prevailed can offset an equivalent capital gain realized in a year when

the 2/3 inclusion rate prevails.

Be aware of the “superficial loss” rules, which deny a capital loss if you or

an affiliated entity (e.g., spouse, RRSP, TFSA) acquires the same security

30 days before/after the loss transaction. In this case, you will be denied

the capital loss in the current tax year to offset the capital gain and it will

be added to the adjusted cost base of the identical property.

Gifting to Adult Children — Gifting investments that have declined in

value to an adult child can put subsequent capital gains/income in the

hands of someone in a lower tax bracket, resulting in less taxes payable

for the family unit. This will also trigger a capital loss in your hands, which

can help to offset realized capital gains. Transferring assets to children

while alive can reduce the value of an estate and the eventual taxes or

probate fees (when applicable) on your estate at death.

Benefit From Your Gains: Donating Securities In Kind — Donating

publicly-traded securities “in kind” that have appreciated in value may

eliminate the tax liability on the capital gain triggered and allow for a

donation tax credit for the fair market value of the securities. Do not sell

securities and donate the proceeds, as part of the tax benefit will be lost.

If securities have declined in value, simply sell them to claim the capital

loss and donate cash to entitle you to a donation tax credit. If you’re

subject to the alternative minimum tax, be aware that there may be tax

implications. Remember to make charitable donations well in advance of

the December 31, 2024, deadline to count towards your 2024 taxes.

*At the time of publication, the implementation bill has not achieved royal assent.

A Handful of Other Year-End Tax Planning Reminders

? RRSP Contributions: Don’t wait until the last moment to impact your

2024 taxes, although you still have 60 days after the calendar yearend

to make RRSP contributions for that tax year.

? RESP Contributions: This won’t affect your 2024 taxes, but you may

potentially benefit from the CESG grants in 2024.

? Income Splitting: This may include paying reasonable salaries to

family members for services provided to a business, or electing to split

eligible pension income with a spouse on a tax return.

? Turned 65 in 2024? If you don’t have eligible pension income,

consider purchasing an annuity or opening a small RRIF to claim the

pension income tax credit.

? Turned 71 in 2024? Your RRSP will need to collapse by year end, so

please call the office to discuss the options available.