As we make plans to ring in the New Year, it’s a good idea to think about personal income tax planning now and be prepared when final tax payments are due. Dec. 31, 2021 is generally the last date for transactions that affect 2021 personal income taxes. Here are some strategies to help you manage your tax costs.
1. Understand tax implications of COVID-19 benefits
There were many financial relief programs during the pandemic and these payments are taxable. Even if taxes were withheld at 10 per cent, you may have additional tax owing in the spring. If you repay any amounts under these government programs, you have the option of claiming a deduction for the repaid amount in the year in which the benefit amount was received rather than in the year in which the repayment is made, as long as the repayment is made before the end of 2022.
2. Last trading day is Dec. 29
To include a disposition of marketable securities in your 2021 tax year, you need to sell them on or before the stock exchange’s last trading day for settlement in 2021. The last trading day for settlement in 2021 will generally be Dec. 29 for Canadian exchanges. Selling assets with an accrued loss can offset realized capital gains in 2021 or going back as far as 2018.
3. Manage amounts eligible for deduction or credit
- If you plan to donate money to a registered charity, you should consider donating publicly listed securities you own instead of cash. If there is an accrued gain on your securities, by donating the shares directly to the charity, you can save on capital gains tax that you would otherwise incur.
Manage medical expenses
- If your medical expenses for the current year are already in excess of the threshold and you anticipate that you won’t have medical expenses in excess of the threshold next year, consider paying now for additional expenses that will arise in the near future.
4. 2021 home office expenses
The re-elected federal government has indicated that it will extend access to the simplified method for claiming home office expenses for an additional two years through to 2022 and the maximum deductible amount will be increased to $500 from $400. More details are expected from the government.
5. Luxury goods before Jan. 1, 2022
A new 10 per cent luxury tax on the purchase of certain cars, boats, and personal aircraft that retail for more than certain thresholds is said to be implemented beginning Jan. 1, 2022. You may want to make your purchase before the end of 2021.
6. RRSP contributions
Your RRSP contribution must be made on or before March 1, 2022. If you want to know how much you can contribute for 2021, check your RRSP contribution limit on your 2020 notice of assessment.
7. Pay interest on low-interest loans
If you have entered into an income-splitting arrangement with family members by loaning your personal after-tax funds to a spouse, minor child, or family trust at the CRA’s prescribed rate, you should pay the interest before Jan. 30, 2022.
Now is a good time to check to see if you’re up to date on your 2021 payments. Plan to make the required final payment by Dec. 15, 2021.
By investing some time to review your personal tax situation during the year, and especially as you near the end of 2021, you may find some easy ways to save on your annual personal tax bill.
Scott Conner is an experienced tax practitioner and practical problem solver at BDO. As a partner specializing in Canadian income tax, Scott has particular specialties in private companies, planning for estates, trusts, and complex transactions. Scott works closely with his clients to understand their specific needs and adjust strategies accordingly. Scott and his team take a proactive, hands-on approach. They closely follow existing and proposed legislation to determine how it will affect individual financial goals, and provide ongoing guidance.