Ten Tax Tips for the End of 2013
Grant Thornton LLP shares timely tips from new year-end tax planning guide
TORONTO--(BUSINESS WIRE)--Though we may have visions of sugar plums dancing in our heads and money flying out of our wallets as we shop for the perfect gift, it pays to take a few moments this December to consider ways you can reduce your tax liability— if you act quickly. “It’s not too late to change what will go on your 2013 tax return when tax season rolls around,” says Keith MacIntyre, National Leader of Tax, Grant Thornton LLP. “You could even use the tax savings to put an extra gift under the tree.”
“You could even use the tax savings to put an extra gift under the tree.”
Grant Thornton’s new 2013 Year End Tax Planning Guide, available as a free download, contains advice for businesses, employees, investors, and individual taxpayers, as well as a section on sales tax advice. Within this guide, you’ll find that many of these tax-saving measures require implementation before the end of the year or early in 2014. But, in order to capitalize on these opportunities, now’s the time to review your 2013 tax situation to see if any apply to you.
MacIntyre recommends that Canadians consider these ten last-minute tax planning tips, explained in more detail, along with many other tax savings ideas, in the 2013 Year End Tax Planning Guide:
- Salary, bonus or dividends? What’s the right compensation strategy for you?
If you’re the owner-manager of a closely held Canadian-controlled private corporation, you should consider the mix of salary, bonus and dividends in your compensation package. A bonus is often preferred over salary, since the payment can be deferred until after the company’s year-end.
- Consider paying non-eligible dividends before the end of 2013.
The top marginal tax rates for non-eligible dividends are increasing in all provinces in 2014. Non-eligible dividends can be paid from income that was taxed at low corporate rates. They can also be paid from corporations that earn certain investment income. If you are considering paying yourself a dividend from your corporation, consider paying the dividend before the end of 2013.
- Non-taxable gifts for employees—understand the rules.
If you want to give your employees a non-taxable holiday gift, you should be aware of the CRA’s current position on this. Non-cash gifts and awards to an arm’s-length employee will not be taxable to the extent that the total aggregate value of all non-cash gifts and awards to that employee is less than $500 annually. The total value in excess of $500 annually will be taxable. Gift cards are not considered to be non-cash gifts and are taxable.
- Minimize the taxable benefit of an employer-provided automobile.
If your employer provides you with an automobile, you’ll have a taxable benefit included in your income consisting of a “standby charge” and an “operating cost benefit.” The standby charge can be reduced if the vehicle is used more than 50% of the time for business purposes and annual personal driving is less than 20,000 km. If you are close to the threshold, consider reducing your personal use of the vehicle from now until the end of the year.
- Acquiring and disposing of assets—understand the tax implications.
If you are planning to purchase an asset, you should generally acquire it before the end of your fiscal year. However, to benefit from a tax deduction, the asset must be “available for use.” On the other hand, the disposal of assets that have appreciated in value can create significant income tax liabilities. Although it’s generally recommended that you dispose of an asset at the beginning of the next fiscal period, there may be options available to defer or reduce the potential tax liability on the sale of a significant capital asset.
- Maximize the tax benefits of your capital gains and losses.
If you have realized a capital gain in 2013 or in any of the last three years (2010–2012), consider if it makes good investment sense to sell investments with accrued losses before the end of the year. There are also ways to transfer the loss to the spouse with the gain. When disposing of Canadian shares, the transaction must settle before the end of the year.
- Loan money to your spouse or common-law partner and split the income.
With current interest rates at low levels, you might want to look into the option of loaning funds to a spouse or common-law partner who is in a lower marginal tax bracket than yourself. Your spouse or common-law partner can invest the loan proceeds and include any income or capital gains in his/her income. If properly structured, the interest rate on the loan will stay at the prescribed rate in effect at the time the loan is made—even if rates increase in the future. Since the prescribed rate is decreasing to 1% in the first quarter of 2014, if you have not already implemented this strategy, you should wait until the New Year to benefit from it. Talk to your accountant about this one.
- Registered Retirement Savings Plan (RRSP)—contribute and save.
You must make your 2013 RRSP contribution by March 1, 2014. Check your 2012 Notice of Assessment to confirm your RRSP contribution room. You can over-contribute to your RRSP—within limits—without having to pay a penalty tax. In general, the cumulative amount you can over-contribute to your plan is $2,000. You might also consider delaying your RRSP contribution if you expect to be in a higher tax bracket in the near future.
- Pay your expenses in 2013. And don’t forget your receipts!
Before the end of the year, you should make certain payments and obtain your receipts so that you can claim all of the credits and deductions to which you are entitled for 2013. In particular, consider these expenses for you, your spouse or common-law partner, minor children, as well as amounts paid by you or your spouse or common-law partner for certain other dependents: medical expenses; physical fitness costs; registration costs for artistic, cultural, recreational or development activities; public transit costs; investment costs (, rental, interest and brokers’ fees, and this is the last year you can claim your safety deposit box); moving costs; tuition fees and interest on student; loans; and charitable and political donations.
- Maximize your tax benefits with charitable donations.
In general, charitable donations over $200 result in tax savings at the highest marginal tax rate. If you and your spouse (or common-law partner) have not claimed any charitable donations since 2008, you are eligible to claim a one-time only First-Time Donor’s Super Credit (FDSC), which provides an additional 25% tax credit on up to $1,000 of donations. You can also obtain additional tax benefits if you donate publicly traded securities to a charity.
While these tips aren’t a substitute for the recommendations of a personal tax adviser, and individual circumstances vary, these tips can help Canadians begin the conversation with their accountant or financial advisor. Make sure you check out all of the details for these and other tips at the 2013 Year End Tax Planning Guide.
Grant Thornton Planiguide/Tax Planning Guide APP Updated for 2013/2014
For those who want to have a world of Canadian tax information at their fingertips at any time, Grant Thornton LLP has just updated the Grant Thornton Planiguide/Tax planning guide, a free app available from Apple iTunes. It includes strategic tax planning information, tips and tables, providing the latest business and individual tax developments. If you’ve already downloaded the Grant Thornton Planiguide/Tax planning guide, make sure to update to version 2.1 for all the most current information for 2013/2014.
Halifax-based Keith MacIntyre, National Leader, Tax, Grant Thornton LLP is available for media interviews regarding end-of-year tax planning and other tax planning issues. Grant Thornton also has tax experts in offices across Canada.
About Grant Thornton LLP
Grant Thornton LLP is a leading Canadian accounting and advisory firm providing audit, tax and advisory services to private and public organizations. We help dynamic organizations unlock their potential for growth by providing meaningful, actionable advice through a broad range of services. Together with the Quebec firm Raymond Chabot Grant Thornton LLP, Grant Thornton in Canada has approximately 4,000 people in offices across Canada. Grant Thornton LLP is a Canadian member of Grant Thornton International Ltd, whose member firms operate in close to 100 countries worldwide. FOLLOW US ON TWITTER: @GrantThorntonCA