Your "End of Year" Checklist

If you are like me, you are ready to ring in the New Year, open a bottle of bubbles, and bid 2020 adieu. While much of our regular routine has been shaken up, there are some constants that remain – and one of those is that a lot of our financial and benefits years run on a calendar year. To make sure that you take advantage of the good things that can come from 2020, before ringing in the new year we should all do a quick review of the following:

 RESP Accounts

o  Have you contributed for each child to take advantage of the Child Education Savings Grants? In each year, 20% of your contributions are matched, up to a maximum of $500 awarded ($2,500 in contributions per child)[1].

o  If you have not maximized your contributions in prior years, you can “catch up” the grants, up to one year at a time. If you have not maximized your contributions, please feel free to reach out and we can discuss how to maximize your grants[2].

o  If the account is 35 years old, you should start planning for how to wind the plan up without incurring a 20% tax penalty on earnings[3].

TFSA Accounts

o  On January 2nd, 2021 you will be able to contribute an additional $6,000 to your TFSA account. If you want to do this at the beginning of the year, you will want to think about making sure those funds will be available - but be careful not to accidentally contribute too early[4].

o  If you will be needing to withdraw from your TFSA in the short term, it may make sense to do so sooner rather than later. Withdrawals are added back to your contribution room in the next calendar year – so a withdrawal this calendar year gives you your contribution room back earlier[5].

o  Double check your contribution room – have you been contributing to your RRSP but neglecting your TFSA? There may be accumulated contribution room you have not taken advantage of.

RRSP Accounts

o  While the deadline to apply RRSP contributions to the 2020 year is not until the end of February, it is not a bad idea to pay attention to this early. 

o  Has your income declined in 2020? It is a good time to review your income this year compared to your expected returns in future years. If this year is lower than normal and expected to be an exception – maybe you contribute to other vehicles or carry forward your deduction room. If on the other hand, your income increased this year, it is good to look at any carried forward contribution room.

o  If you have turned 71 this year, you have until the end of the year to turn your account into a RRIF or annuity[6].

Spousal loans

o  Interest on spousal loans must be paid annually by January 30th, so while not required by the end of the year, it is a good thing to keep aware of[7].

o  The prescribed interest rate was lowered from 2% to 1% in July[8], so if you took out a spousal loan while the rate was higher you may wish to repay the loan and take out a new one at the lower rate. This may incur other taxable events such as capital gains / losses, and brokerage fees. You should speak with your financial advisor before to ensure this is appropriate for you, as well as ensuring your loan remains onside with the CRA.

Organize capital gains / losses

o  Typically institutions will provide some documentation into dividend and interest income received throughout the year (sometime in February), however if you need to reconcile your capital gains and losses yourself it can take some of the pressure off nearer to tax time if you have already calculated Jan – November, and only need to add December sales later. If you are unsure about if / how to do this, reach out to your financial advisor for assistance.

Employer benefits

o  Do your health and dental benefits run by benefit year or calendar year? Many operate on a January 1st – Dec 31st year, so you may want to make sure your dental appointment, eye exam, massages etc. are booked to take advantage of your benefits. If you have already used up your dental benefits and are waiting to finish up a filling, or other procedure, call your dentist early to book for the new year when you have new benefits.

Health Care Spending Accounts / Lifestyle Spending Accounts

o  Do you have a healthcare (tax-free) or lifestyle (taxable) spending account? Does it have a carry forward provision? If yes, spending allocation not spent this year can be carried forward to next year before being lost (for example if given $1,000 per year if you use $500 this year, you can carry forward the other $500 to next year, but if it’s still unused next year it will be lost). If there is no carry forward provision, it must be used by December 31st of this year.

o  Healthcare Spending Account items include anything that is an eligible CRA medical expense[9] – such as coinsurance for your benefits (if only 80% of your drugs are covered, the spending account can cover the remaining 20%), or any premiums that you pay personally for health and dental premiums. 

o  Lifestyle Spending Account items are much broader, and can include fitness attire, gym memberships, even golf clubs – check your provider listing as it can vary. Please note you will incur a taxable benefit for these items, so while you will not receive them for free, you will pay your marginal tax rate for them rather than full cost.

Employee and Family Assistance Programs

o  Christmas can be a really hard time for people at the best of times, and this year is certainly not the best of times. If you find yourself stressed about the holidays, for any reason, reach out to your employers Employee and Family Assistance program for confidential support. While you are taking care of your family, do not forget to take care of yourself.

Charitable donations

o  You may not be able to donate as you usually do this year, and that is okay. If, however, you can donate, many organizations have seen a sharp decline in their donations and have lost a lot of their options for fundraising. If you have a cause that is close to your heart and you have determined you are able to, why not give an early Christmas gift to your cause of choice, and get a donation receipt to take advantage of a charitable donation tax credit? As an avid animal lover, the Alberta Animal Rescue Crew Society (AARCS) is my charity of choice, but there are tons of great organizations covering a wide variety of social, environmental, and medical causes.

o  Check if your employer offers a charitable donation match. Many offer a list of charities in which they will match your donation when you provide proof of your donation. This lets you take advantage of the tax credit, and double the funding the charity of your choice!

While these have focused on keeping your financial accounts in order, December is also a stressful time of year for people purchasing gifts, decorations, trying to coordinate travel to see family (although that may be less this year, which brings on its own kind of stress). People seem to be going two ways this year, either putting up the tree in October to brighten up the year, or wondering whether they will put it up at all – after all, what is the point if you can’t have family over to open presents and have a big dinner? We have heard the terms “historic” and “unprecedented” so many times throughout this year, so it seems only fair to take this “new normal” and apply it to the holidays:

Christmas reset

o  In recent years, Christmas has meant bigger and bigger celebrations and presents, with the result being a “January blues” when the bills set in - this may be a chance to hit a bit of a “reset” button on what Christmas means to us. 

o  Rather than big gifts, ordering the latest on Black Friday from Amazon, etc. look for smaller gifts from local stores to support the local economy and give something with more personalized meaning. Ryan Corry from Calgary has created www.localshops.com , a website offering a variety of products made in Alberta.

o  Take some of the latest baking trends and make tasty treats for the family – what about “Hot Chocolate Bombs” as stocking stuffers?

o  Start planning for when life returns to normal – give friends and family “IOUs” for an in-person experience when we can travel more normally. Then you can look forward to spending some time together, as well as whatever your chosen activity is (hiking, skiing, road trip to see the “worlds biggest things” in Alberta).

o  If you just want to cancel Christmas and move on to 2021, that’s okay too – it’s been a crazy year, and it bears repeating – do not forget to take care of yourself.

And what about after the holidays? Becoming more involved with finances has been a consistent top three New Year’s Resolution[10] (up there with exercise more and eat healthier). Preparing a budget and having a cash flow plan are important steps to creating the financial future you want and can also help with other top resolutions like reducing stress, getting better sleep, and spending more time with family. If you want to set (or review) your budget, please reach out and I am happy to help you start working toward paying off debts, saving more, and finding your balance between living now, and spending later.

If you haven’t heard from your financial planner by the end of this year, you will definitely want to connect with them in early 2021 to make sure your tax planning is handled in advance of the deadline. In the meantime, stay safe, and Happy Holidays!

Elyce Harris is a CFA Charterholder working with Cornerstone Investment Counsel, a registered ICPM in Alberta, Canada.  She is also a licensed insurance broker in Alberta.  While every effort is made to ensure the accuracy of statements, errors may occur.  If a specific stat or carrier policy is cited, a source will be provided, however this is not done for generalizations.

[1] Government of Canada, “Apply for the Canada Education Savings Grant (CESG) – How much a child could get”, https://www.canada.ca/en/services/benefits/education/education-savings/savings-grant/amount.html

[2] Government of Canada, “Information about Registered Education Savings Plans (RESPs)”, https://www.canada.ca/en/employment-social-development/services/student-financial-aid/education-savings/resp/info.html#h9

[3] Government of Canada, “Information about Registered Education Savings Plans (RESPs)”, https://www.canada.ca/en/employment-social-development/services/student-financial-aid/education-savings/resp/info.html

[4] Government of Canada, “MP, DB, RRSP, DPSP, and TFSA limits and the YMPE”, https://www.canada.ca/en/revenue-agency/services/tax/registered-plans-administrators/pspa/mp-rrsp-dpsp-tfsa-limits-ympe.html

[5] Government of Canada, “Tax-Free Savings Account (TFSA), Guide for Individuals”, https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4466/tax-free-savings-account-tfsa-guide-individuals.html#replacing_withdrawals

[6] Government of Canada, “Options for your own RRSPS”, https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/rrsp-options-when-you-turn-71/options-your-rrsps.html

[7] Tax Tips, “Lend Money to Your Spouse or Child”, https://www.taxtips.ca/personaltax/lend-to-spouse-child.htm

[8] Government of Canada, “Prescribed Interest Rates”, https://www.canada.ca/en/revenue-agency/services/tax/prescribed-interest-rates.html

[9] Government of Canada, “Lines 33099 and 33199 – Eligible medical expenses you can claim on your tax return”, https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return.html

[10] YouGov, “The most popular resolutions among Canadians”, https://edmonton.ctvnews.ca/calgary-man-creates-amazon-like-website-for-made-in-alberta-products-1.5100386