Time is running out for tax planning

This time of year, it’s hard to corral your clients, who no doubt have more festive activities on their minds than visiting their trusted advisor. But time is fast running out for investors to minimize their tax bills for 2011.

“December is the key month to do tax-loss selling,” says Jamie Golombek, managing director, tax and estate planning at CIBC. “The losses that you trigger can be used against gains this year, or be carried back three years. There’s a deadline—you must settle the trade in 2011. The last trading date to do that is December 23.”

But year-end selling isn’t the only tip you can offer clients.

Dividend investing has returned to the spotlight over the past couple of years, as investors sought an income stream that might mitigate the volatility of the equity markets. But that dividend income could result in a claw-back of Old Age Security benefits if not carefully monitored.

“When you receive a dividend from a Canadian company, we gross it up by a factor of 41%,” Golombek explains. “What that tries to do is equate the income you’re receiving from a corporation and bring it back up to the income earned by that corporation. The problem for seniors is that it artificially increases your income and therefore reduces the amount of OAS they would otherwise be entitled to.”

It is therefore important to review client asset allocation, as well as what kind of accounts in which each asset is held.

“Year-end is just a good time, as you look at your portfolio, to ask ‘am I on track to meet my financial goal based on my original financial plan?’” Golombek says. “I think year end is a very convenient time to look at asset allocation.”

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.