4 year-end tax tips from Golombek

December’s here, and with it comes several tax deadlines.

Jamie Golombek, managing director of tax & estate planning at CIBC Wealth Advisory Services, highlights four things to do before December 31st.

Listen to the full podcast on AdvisorToGo.

1. Don’t forget tax-loss selling

Christmas Eve will be the last day to sell investments that have accrued losses, so that you can offset capital gains realized in the current year, or the prior three years.

Tell clients “the trade date must be no later than December 24th to get [their] settlement in three days for December 31st, including the statutory holidays and the weekend,” says Golombek.

He reminds advisors of the superficial loss rules, which say a client or an affiliated person (including a spouse, a corporation she controls, or a trust of which she is a major beneficiary) cannot buy the losing investment back within 30 calendar days. “Otherwise, the loss is added to the cost base and [the client will] not get to realize it right away.”

Read: 8 things to consider when tax-loss harvesting

He also warns that transferring a losing investment in-kind to a registered plan, so as to realize the loss without actually selling, isn’t permitted. Instead, Golombek suggests clients sell the losing investment, contribute the proceeds to the RRSP or TFSA, “and then 30 days later, if you still want the original investment, buy it back.”

Read: Taxes and your investments

Clients can purchase similar securities (e.g., if she sold one bank’s stock, she could purchase another bank’s stock) while waiting for the required 30-day period to expire.

2. Consider prescribed-rate loans

Golombek says CRA has extended the 1% prescribed interest rate until March 31. “The opportunity to split income [between spouses] is tremendous,” he says.

Read: Save tax with family loans

3. Remind 71-year-olds to convert their RRSPs

Clients turning 71 in 2014 must convert their RRSPs to a RRIF or registered annuity before the end of the year.

Read: Don’t whiff on RRIFs

“One planning idea that we often recommend to clients who have turned 71 is to make a one-time overcontribution to their RRSPs in December, before conversion.”

Even if a client has earned income in 2014 that generates RRSP room for 2015, he wouldn’t be able to contribute if he’s 72 or older in 2015, says Golombek. “So, even though he’ll pay a penalty tax of 1% on an overcontribution [of more than $2,000] for the month of December, new RRSP room opens up January 1, 2015, so the penalty tax ceases.”

Read: Converting RRSPs to RRIFs

The client can then deduct the overcontributed amount on his 2015 tax return, or in a later year.

But, adds Golombek, “if the client has a spouse or partner that’s younger than 71, [he or she] can continue using a spousal RRSP and doesn’t need to do that overcontribution.”

4. Don’t forget about RESPs

If your client’s child or grandchild turned 15 this year and had not been an RESP beneficiary prior to 2014, then your client needs to “makes $2,000 of RESP contributions by the end of this year, [so that the beneficiary] will get the Canada Education Savings Grant.”

That’s “a big opportunity to make a contribution for any kids or grandkids who turned 15 in 2014, and who have not yet opened up an RESP.”

Read: RESPs: A good idea for hockey kids?

If clients’ children or grandchildren are already RESP beneficiaries, and they started attending school in 2014, then those students “have until the end of the year to take out educational assistance payments, which are taxable in their hands.”

Golombek recommends students take out these payments if they have personal credits they won’t use, such as the basic personal amount or tuition credits. “Why not make an extra withdrawal to soak up that income on a completely tax-free basis?”

Read:

Parents shouldn’t shoulder university costs, say kids

Post-secondary costs will balloon to $150,000

Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.