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MAKING CENTS: It's the holiday season. It's also inching towards tax time

As the holiday season begins, most of us are focused on getting into the holiday spirit with friends and family rather than thinking about year-end tax planning.

As the holiday season begins, most of us are focused on getting into the holiday spirit with friends and family rather than thinking about year-end tax planning. But with just a month left in 2019, this is the time to ensure you take advantage of any tax-efficient decisions that need to be made this year.

Investors should be reviewing their overall income for the calendar year in order to use tax strategies that will keep as much of their wealth in the family’s pockets and out of the hands of the government.

Four ways to do this include tax loss selling, deferring capital gains, early RRSP/RRIF withdrawals, and charitable giving.

One common method to lower taxes takes place every November and December, in the form “tax-loss selling.”

A capital gain is generated when you sell an investment for a profit. This in itself is not a bad thing; you made money after all!

But you can actually avoid paying tax on those profits if you offset them by selling some of your losing positions – something that may be harder to find this year.

It’s based on your calendar year profits and losses so you have until Dec. 24 to sell any investments that are underwater in order to use them to reduce your overall net profits, and therefore your resulting taxes.

This strategy can also be used to recoup taxes paid in the past three years or protect you from paying tax in the future so it’s best to speak to your accountant and financial advisor together. Perhaps you had or will have the sale of a business or investment property that you can help reduce the taxes on as you can carry back the losses up to three years or forward indefinitely. Just be sure to avoid superficial losses by not buying back the same investment for at least 30 days.

It is difficult to imagine with markets hitting all-time highs, that profitable, appreciating assets is the problem for this year’s tax planners, since the goal for investors is to have investments that will grow and flourish over time.

But timing the sale of those assets is another important strategy. In a strong year, trimming up positions, or selling out of positions that have grown 30 to 40 per cent can create large capital gains in your portfolio

By selling these in January rather than December, you delay the income into 2020 and the taxes owing until April 2021. Just by waiting a month, you can defer the taxes for an additional year but you need to assess whether there is an opportunity cost for holding an investment that you actually want to sell. 

Whether you have recently retired or have been retired for years, it is important to keep an eye on your marginal tax rate. If you have built up a large RRSP over the years, it could make sense to make an early RRSP withdrawal. After age 65 there are benefits of making these early RRSP and RRIF withdrawals including the ability to income split with your spouse, qualifying for the pension income tax credit, smoothing out your income over the years, and reducing potential estate taxes owing on residual RRIF balances should something happen to you and your spouse.

Waiting until you’re 72 to begin making RRIF withdrawals isn’t the best strategy for everyone. While deferring income and allowing tax free growth is great, sometimes you need to take advantage of low tax brackets and draw income earlier, even if you don’t need the cash flow. By drawing early, you might only pay 28 per cent tax and avoid your kids paying 49 per cent on the same money.

Finally, making a charitable donation is another way that you can significantly reduce your taxes.

Most investors make donations for the philanthropic reason rather than the tax benefits, but you can boost those tax savings if you structure your donation correctly.

Not only is the timing of the gift important, but how the gift is made, whether in cash or stock, also can increase the savings.

You can multiply the impact of your donations by donating investment securities in-kind as opposed to cash, potentially avoiding capital gains and the taxes on securities that have increased in value while getting a tax credit for the full value. A double whammy.

These are just some strategies to consider before the year end.

It is important to speak with your financial advisor and qualified tax advisor/accountant to determine if any of these strategies are suitable for you.

Lori Pinkowski is a senior portfolio manager and senior vice president at Raymond James Ltd., a member of the Canadian Investor Protection Fund. This is for informational purposes only and does not necessarily reflect the opinions of Raymond James. Lori can answer any questions at 604-915-LORI or You can also listen to her every Wednesday morning on CKNW at 8:40 a.m.

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