Debunking the

(December 16, 2003) With late December becoming ever-more hectic, most clients would rather not worry about their taxes until the New Year. There’s simply too much to get done — besides the government gives them a whole 60 days to finish making tax arrangements, right?

That’s not necessarily the case. Sure, your clients have that extra time to make their final RRSP contributions for 2003, but there are many other elements of tax planning that must be attended to before the end of the year.

“There are some tax and financial planning myths that people accept,” says Prashant Patel, national senior financial planning consultant at RBC Investments. “By doing their homework, people can save themselves some grief, and potentially some money.”

Patel warns that one common myth is that an investor can trigger a capital loss by transferring a losing security into their RRSP. This will not qualify the investor for a capital loss, but they can sell off the security and re-purchase the same product in their RRSP.

He also warns that capital loss sales must be settled by December 31, rather than just having the order placed by then. Since trades generally take three days to settle, the investor should make sure all their tax-loss sales orders are placed by December 24.

Another commonly held belief is that unused RESP contribution space can be rolled over into the following year, like an RRSP. Patel says this is not the case, but that investors can carry forward unused Canada Education Savings Grant (CESG) room, until the year child turns 17.

Many taxpayers believe their provincial taxes are calculated based on where they resided for the majority of the year. Patel says that it is actually based on where they lived as of December 31. If they are planning on moving, they may want to consider whether their new home will land them a higher tax bill. If so, perhaps delaying the move until the New Year would be in order.

Taxpayers turning 69 in 2004 must make their final RRSP contribution before the end of the year, as they cannot pay into their plan in the first 60 days of the New Year, another common misperception.

Also, Patel suggests that if these taxpayers have earned income in 2003, creating 2004 contribution space, they may want to make an overcontribution before the year is over. This will incur a penalty of 1% per month, but, since the overcontribution is being made less than a month before the space is created, the penalty will be outweighed by the tax-savings they will receive by making the contribution. The over-contribution can be claimed on their 2004 taxes

“These strategies may not benefit every investor, so it’s important for people to consult with their financial advisors to determine what works best for them,” says Patel.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com