Don’t miss these year-end tax deadlines

With the end of the year only a few weeks away, BMO reminds Canadians not to wait until April to think about their taxes.

The end of December marks an important time for many Canadians who are looking to minimize the amount of taxes they pay on their investment income.

A BMO Nesbitt Burns study shows 93% respondents believe they are familiar with the income tax deadlines. However, when asked about various, specific tax deadlines, many were found to be clueless.

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“It’s important for Canadians to educate themselves on the various end-of-year deadlines to help ensure there are no missed opportunities to reduce their tax bill,” says John Waters, vice president, head of tax & estate planning, wealth group, BMO Nesbitt Burns. “Many tax strategies require foresight to be effective, and tax planning should be a year-round activity.”

Here are some key year-end deadlines and tax-saving tips:

1. Payment of quarterly tax installments – Deadline: December 15*

Individuals whose estimated income tax payable for the year, or payable for either of the two preceding years, exceeds $3,000 ($1,800 for Quebec residents) may be required to pay income tax installments. Personal tax installments are due four times a year, with the final installment due December 15.
Canadian investors are often required to pay by installment since tax is not deducted at source on investment income. If an investor falls short on any required installments, he/she could incur non-deductible interest or penalties.

2. Tax-loss selling – Deadline: December 24

If you have investments that have depreciated in value, consider selling these investments before year-end to offset capital gains realized earlier in the year to reduce your overall tax bill. It is important to ensure that a sale makes sense from an investment perspective, since stocks sold at a loss cannot be repurchased until at least 30 days after sale to be effective.

3. Charitable donations & other tax credits/deductions – Deadline: December 31

Instead of donating cash to charities, consider donating appreciated publicly-traded securities. This strategy can provide a tax credit equal to the value of the securities donated, while also potentially eliminating the capital gains tax otherwise payable on the gain accrued on the security. Ensure all charitable donations are made before December 31, in order to receive a tax receipt for 2012.
December 31 is also the final payment date for a 2012 tax deduction or credit for expenses such as childcare, medical, tuition and the recently-introduced children’s fitness and arts tax credits.

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4. TFSA withdrawals – Deadline: December 31

If you are planning a withdrawal from your Tax-Free Savings Account (TFSA), consider making this withdrawal in December instead of waiting until the New Year; a withdrawal would result in additional TFSA contribution room for the following year.

5. RRSP contributions for those turning 71 – Deadline: December 31

Individuals who turned 71 years of age in 2012 must collapse their RRSP by the end of the year. Such individuals should consider a final RRSP contribution, assuming any unused contribution room exists. Seniors and/or retirees should also take note of some of the important tax changes in recent years (such as pension income splitting, the amendments to the Canada Pension Plan and the introduction of the TFSA) that may impact their tax planning.

* When a due date falls on a Saturday, a Sunday, or a holiday recognized by the CRA, payment will be considered on time if received the next business day.