Some homework to avoid paying too much tax

Preparing for Christmas promises to be less overwhelming this year, which leaves a little more time to think about your finances, perhaps also to do some end-of-year homework.

That’s good, because exercise seems more necessary than ever. Whether you have made a big splash with your investments or your income has suffered a drop due to the pandemic, you should not stand idly by.

December 31 is a deadline. It is in the interest of completing a few financial operations or incurring expenses before the transition into the new year.

1. Realize your capital losses

The little cottage by the water bought for a pittance 25 years ago, it will cause a tidy tax bill if you recently left it. Profit is called “capital gain”. However, half of that will be added to your income.

If you have suffered losses on other investments, you can deduct them from your gains. For example, if you have lost hope of getting your money back with your Bombardier shares, you could sell them in order to reduce the taxes arising from the sale of the cottage (or shares of GAFAM, Google, Apple, Facebook, Amazon, Microsoft) .

“We can apply losses on past gains, up to three years back. We can also keep them to use them for profits for the next few years, without limits in the future, ”explains Sarah Phaneuf, tax partner at Raymond Chabot Grant Thornton.

Please note: losses on securities held within a registered account (RRSP, RESP, RDSP and TFSA) cannot be used.

2. Get ahead of medical expenses

At the federal level as in Quebec, taxpayers are entitled to tax credits for medical expenses. Dental care, glasses, health insurance premiums, health care not covered by the RAMQ are eligible expenses in Quebec or Ottawa, or, more often, both.

The credit applies to expenses exceeding 3% of income. The higher your salary, the less likely it is that you will be able to take advantage of this credit.

If your income declined in 2020 due to the pandemic, this might be an opportunity to get ahead of medical expenses, as you will be able to more easily qualify for the credit in question.

3. Self-employed workers: increase your expenses

Tax expert Sarah Phaneuf notes that many self-employed workers who usually deduct significant entertainment expenses or expenses related to the use of their car will have to reduce these deductions considerably this year.

These professionals didn’t make less money, but like everyone else, they had to turn to Zoom, Teams and other FaceTime to meet their customers and suppliers. “Since they have fewer expenses to deduct, the installments they made during the year may be insufficient.” Result: a tax balance payable in the spring.

To avoid the additional tax bill, there are two solutions: advance the purchase of office equipment before the end of the year or make an additional “RRSP” effort by March 1.

To do soon

► If you think you will have to withdraw money from your TFSA in the near future, do so preferably before the end of the year.

► If not, open an RESP account for your child (ren).

► If you turned 71 this year, you must convert your RRSP to a RRIF by December 31 at the latest.

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