Year-end tax tips – 21 for ‘21

Timely tactics to trim your tax exposure

Year-end is a time when we start thinking about winding down. However, in the field of tax
planning this is when to take stock, and potentially take action.

As this is 2021, below you will find 21 (or so) important reminders and tips to help you navigate
year-end tax planning, grouped by personal profile and type of need:

Saving and retirement Expand/Collapse

1. Building and accessing retirement savings
RRSP contributions
Contributions to your Registered Retirement Savings Plan (RRSP) can be claimed against your current year’s
income when you file your tax return next spring. You can deduct contributions made during the year or in the first
60 days of the coming year. Some people wait until that 60 day deadline to make their entire contribution.
 Consider making contributions throughout the year, perhaps by automated weekly or monthly deposits. This
can get the tax sheltering growth working for you 12 to 14 months sooner than by lump sum at the deadline.
HBP – Home Buyers’ plan
The Home Buyers’ Plan (HBP) can be used to withdraw up to $35,000 from your RRSP without triggering tax.
You have fifteen years to repay the amount to your RRSP starting the second year after the withdrawal.
 If you will be a first-time purchaser using the HBP next year, considering delaying your withdrawal until the
new year. This will buy you an extra year before your first repayment in 2024, rather than 2023.
LLP – Lifelong Learning Plan
The Lifelong Learning Plan (LLP) allows you to withdraw up to $10,000 in a calendar year from your RRSP, and
up to $20,000 in total. You have ten years to repay the amount to your RRSP starting the earlier of the second
year after you ceased to be a student or five years after your first LLP withdrawal.
 If you are beginning a qualifying program next year, considering delaying your withdrawal until the new year
to push 5-year repayment start year to 2027, rather than 2026.
 Repayment may still be required earlier if you cease to be a student before 2025.

2. Age 65 – Optimizing your pension tax credit
The pension credit saves you at least $350 (varies by province) on the first $2,000 of eligible pension income
(EPI) received in a year. Under age 65, EPI is generally limited Registered Pension Plan (RPP) income. Most
RRIF income will only qualify from age 65, and withdrawals from an RRSP don’t qualify no matter your age.
 If you turn 65 this year, you can convert a sufficient amount of your RRSP holdings to a RRIF before year-end
to take advantage of this tax credit. Unused pension credits do not carry forward, so if you don’t use it, you
lose it.

3. Age 71 – Maturing RRSPs
If you turn age 71 in 2020, you can no longer make contributions to your RRSP after this year, though you may
contribute to a spousal RRSP if your spouse is under age 71. Also by year-end, you must convert your remaining
RRSPs into a Registered Retirement Income Fund (RRIF) or registered annuity, or take the lump sum as income.
 If you turn age 71 in 2020, be sure to convert or cash-in RRSPs before year-end.
 If you have earned income this year, your contribution room credit does not arise until after year-end. If you
have a spouse who is under age 71, you may use this room in the new year to contribute to a spousal RRSP.
 If not, you could intentionally over-contribute the amount before year-end, incur the 1% over-contribution
penalty for December, but then be back onside in January when the contribution room is credited.

Spouses and families Expand/Collapse

4. Spousal income tax sheltering

Strategic spousal RRSPs
Normally, withdrawals from a spousal RRSP are taxable to the plan’s annuitant/owner. However, if the withdrawal
occurs in the year of contribution or the following two calendar years, the contributor spouse has to pay the tax.
Contributions in the first 60 days of a year apply to that calendar year, not the year for which a deduction is taken.
 Consider making spousal RRSP contributions before year-end if you intend to make a strategic early
withdrawal. This will allow withdrawals without attribution in 2024, versus 2025 if the contribution is made in
the first 60 days of 2022. Either way, the deduction for the contribution can be applied against 2021 income.
Gift to spouse for TFSA
A Tax-Free Savings Account (TFSA) allows tax-free investment growth and tax-free withdrawals. If one spouse
gives money to the other for TFSA investment, there is no attribution while investments grow, nor when
withdrawals are taken. The current per-person annual allotment of TFSA room is $6,000. For someone who was
at least 18 at its inception in 2009 but has not used it, their cumulative TFSA room in 2021 is $75,500.
 As a complement or alternative to spousal RRSPs, a gift from one spouse to the other to make use of their
annual TFSA room is a simpler way to share the wealth, and without concern for any year-end issues.

5. Spouses – Prescribed rate loans
On a gift from one spouse to the other, tax on investment income is attributed back to the giver, but that will not
occur if a properly documented loan is used. To qualify, interest must be charged by the lending spouse to the
borrowing spouse at the rate prescribed by tax regulations. Through to the end of 2021, the prescribed rate
stands at 1%, the lowest level it can be.
 Consider establishing a new loan, or replacing an existing loan with a new one at the current rate. Though the
rate is adjusted quarterly (with the next announcement coming January 1, 2022), your loan can keep the rate
set at its inception, as long as interest payments are made by January 30 after the year to which they relate.

6. Children’s education
RESP contribution key ages
The Canada Education Savings Grant (CESG) matches up to 20% of what a subscriber contributes to a
Registered Education Savings Plan (RESP). Generally, this is maxed at $500 on $2,500 of annual contributions,
but if unused contribution room is carried forward, you can get up to $1,000 of CESG for a $5,000 contribution.
To be entitled to CESG for a 16- or 17-year-old child, there must be at least $2,000 total contributions by age 15,
or at least $100 contributed in any four (not necessarily consecutive) preceding years.
 For a 17-year-old (born in 2004), this is the last year for grant eligibility.
 For a 15-year-old (born in 2006) for whom no contributions have yet been made, a contribution of $2,000
before year-end is necessary to be entitled to any further CESG at ages 16 and 17.
 For a 12-year old (born in 2009) for whom no contributions have yet been made, a $100 contribution this year
will keep the window open for CESG at ages 16 and 17, as long as that is followed with at least $100 in each
of the next three years.
Interest on student loans
Interest paid on a government sponsored student loan is deductible to the student-payor. If the individual has
insufficient income to make use of the deduction in a year interest is paid, the deduction cannot be transferred to
a parent (or any other person), but it can be carried forward and claimed up to five years later.
 Your 2021 return is the last opportunity to claim student loan interest that was paid in 2015.

Homeowners and house-hunters Expand/Collapse

7. Downpayments
Large TFSA withdrawals
A key feature of the TFSA is that withdrawals taken in a year entitle the person to a dollar-for-dollar re-contribution
credit the following January 1st.
 If you’re planning a large TFSA withdrawal for a home down payment (or any large purchase), consider doing
that before year-end so that the re-contribution credit arises this next January 1st, and not 365 days later.
New home savings supports
The 2021 Liberal party election platform included promises to allow up to $40,000 contributions into a new taxfree
First Home Savings Account, to add a repayable loan option to the current shared-equity approach in the
First-Time Home Buyers’ Incentive, and to double the First-Time Home Buyers Tax Credit, from $5,000 to
$10,000. While not year-end tips to act upon, they are certainly items to watch out for as Parliament resumes.

8. Working from home
Employees working from home as a condition of employment may claim an office expense deduction. During the
COVID-19 pandemic, a simplified method allowed an employee to claim $2 for each day worked from home due
to the pandemic, up to a maximum of $400, including those who opted but were not required to work from home.
 The 2021 Liberal party election platform included a promise to extend the simplified home expense
deduction for an additional 2 years, through the 2022 tax year, and increase the deductible amount to $500.
Assuming this becomes law, your year-end task is simply to tally the number of home work days over 2021.
 Alternatively, if you prefer the detailed method, your employer completes Form T2200S and you complete
Form T777S - Statement of Employment Expenses for Working at Home Due to COVID-19. You will need to
keep your supporting documents, so it would be prudent to begin assembling them before year-end.
 If you work from home regardless of COVID-19, your employer completes Form T2200 and you complete
Form T777 - Statement of Employment Expenses. Again, year-end is a good time to collect the documents.

9. Relocating within Canada
Provincial residence at year-end
Annual income is taxed in the province where you are resident on December 31 of the year. Specifically, there is
no apportionment of days between the two provinces based on the date you move.
 If you are moving to a higher-tax province, it may be beneficial to delay your move until the new year. Or if
you are moving to a lower-tax province, a move before year-end may better serve your interests.
Moving expenses
You can claim moving expenses if you moved be at least 40 kilometres closer to work, to run a business or to
attend post-secondary school full-time. This includes most closing costs of selling a home (including real estate
commission), travel, transportation, storage and up to 15 days of temporary lodging.
 If you have flexibility in when to move, it may be beneficial to accelerate your move to happen before yearend
or delay it into the new year. A deduction is generally more valuable when applied against higher income.
Unused expenses may be carried forward, but you cannot carry back moving expenses to a prior year.
Principal residence exemption
Under the principal residence exemption (PRE), there is no tax on capital gains for a qualfying property. For
decades there was no formal reporting procedure, but as of 2016 a disposition must be reported on the income
tax return for the year. Failure to report properly could lead to penalties or even a denial of the PRE.
 If you sold an eligible property this year, obtain your closing file from your real estate lawyer before year-end,
including the return of any documents you provided, to be ready to claim the PRE on your income tax return.

Disability needs Expand/Collapse

10. Registered disability savings plans
A Registered Disability Savings Plan (RDSP) allows tax-sheltered investment growth for a person who is eligible
to claim the disability tax credit (DTC). The lifetime contribution limit is $200,000, with no annual limit. Government
support is available in the form of up to $70,000 of grants at a matching rate as high as 300%, and $20,000 of
free bonds.
 For a 59-year old (born in 1962), this is the last year that a plan may be opened.
 For a 49-year old (born in 1972), this is the last year of government support eligibility.

11. Home accessibility tax credit
For persons aged 65 and over who claim the disability tax credit, the home accessibility tax credit (HATC) can be
claimed on renovations that make your home safer or more accessible/functional for you. It applies to expenses
up to $10,000 annually, which could lower your tax bill by as much as $1,500.
 Collect and keep receipts to support your claim.
 As it can be claimed each year, a large renovation project might be planned to straddle a year-end to
maximize the credit value.
 A given payment may concurrently qualify for the medical expense tax credit. meaning both credits may be
claimed for the same outlay.
 The 2021 Liberal election platform included a promise to double the HATC to $20,000. Assuming this is
enacted, the HATC will then be worth as much as $3,000 in reduced taxes in a single year.

12. Medical expenses
The medical expense tax credit may be claimed on the amount of qualifying medical expenses over the lesser of
3% of net income and an indexed annual dollar limit. For 2021, the federal limit is $2,421, with provincial limits
ranging from about $1,600 to $2,500. The credit may be claimed for any 12-month period ending in the tax year.
 If you have significant medical expenses, either in the last year or upcoming, total them up and take careful
note of the dates involved. This analysis could inform when you book procedures, or subscribe and pay for
qualifying devices and services.

Investors and markets Expand/Collapse

13. Capital gain/loss selling
In a non-registered investment account (also known as an open or cash account), the sale of an investment can
lead to a capital gain or loss. When a loss is realized, it must first be applied to reduce capital gains in that year,
with any excess allowed to be carried back as many as three years, or carried forward indefinitely.
 If you had realized capital gains in 2018, this is the last year you can carry back capital losses to apply
against those gains and recover tax by amending that earlier tax return.
 The relevant tax date is the settlement date, or trade date plus two business days, known as T+2. This year, a
sale on Wednesday, December 29 will settle by Friday, December 31, the last business day of 2021.
 Take care not to re-acquire the identical security 30 days before or 30 days after a capital loss transaction,
triggering the superficial loss rule. This applies to you, your spouse, a corporation you control, and trusts of
which you are the main beneficiary (such as your RRSP, RRIF or TFSA). The loss will be denied and added
back to the Adjusted Cost Base (ACB) of the acquired property.

14. Interest and fee expenses
An investor may claim a tax deduction for investment management fees and for interest on debt used to acquire
business or investment assets (though not for RRSPs, RESPs or other non-taxable plans).
 To qualify, investment fees and interest must be paid (not just billed) before year-end.

15. Mutual funds at year-end
Mutual funds distribute their annual income to investors as of a record date near year-end, often mid-December. If
you purchase late in the year but before the record date, you may be taxed on the full year’s distributed income,
despite only briefly being a holder in that year. This is not a concern for non-taxable accounts such as RRSPs,
RRIFs or TFSAs.
 If you wish to purchase a mutual fund in a non-registered account, it may be preferable to delay that purchase
until the new year. While the early tax bill will eventually be accounted for in the investment’s adjusted cost
base when you have a later disposition, you are out of pocket in the present.

Business matters Expand/Collapse

16. TOSI and family dividends
When dividends from a private corporation are paid to family of a principal shareholder, the tax-on-split-income
(TOSI) may cause them to be taxed at top bracket rate, undoing the intended income splitting. TOSI has applied
to minors since the 1990s, and since 2018 has applied to adult children and spouses, subject to some exceptions.
 Wait until a minor child reaches the age of 18 to pay dividends. After that age, TOSI will not apply if that
recipient is engaged on a regular, continuous and substantial basis in the business, which usually means an
average of 20 hours per week during the part of the year that the business operates.
 Wait until a child reaches age 25, as TOSI will not apply to a dividend to a child over age 24 who:
 Owns shares with at least 10% of the voting rights and value of the corporation, as long as the
corporation is not a service business or professional corporation.
 Is entitled to a “reasonable return” based on work performed, contributed capital or risk undertaken, or
qualifies for “safe harbour capital return”. Consult a tax advisor to discuss how to meet these definitions.
 TOSI will not apply on a dividend to a spouse if the principal shareholder is over the age of 65.

17. Acquiring capital assets
Capital cost allowance (CCA) is the part of the tax system that accounts for depreciation. Each capital asset class
has a maximum percentage rate that may be claimed as an annual deduction. For most CCA classes, only half of
the rate may be claimed in the first/acquisition year, no matter when in the year the asset was purchased.
 Consider making capital purchases close to year-end. While the first year rule will apply, the actual outlay
may be within days of year-end, making the claim of a half year’s CCA a reasonable proposition as a smart
way to manage cash flow.

18. Bonuses before year-end
Employee bonuses from a corporation are deductible in the corporation’s tax year when declared, but do not have
to be taken into the employee’s income until actually paid. That can be as late as 179 days after the corporation’s
year-end.
 Have your corporation declare a bonus to you before 2021 year-end to defer income recognition to you as
employee into 2022, which in turn is reportable when you file your income tax return in 2023.

Estate planning and charity Expand/Collapse

19. Charitable giving
Donations before year-end
The tax credit for charitable donations is one of the most generous tax benefits available. Initially it is at the lowest
tax bracket rate, but then jumps to the highest bracket rate on annual donation amounts over $200.
 Unlike RRSP deductions which may be deductible when made in the first 60 days of the following year,
donations must occur in the calendar year. Make sure that the charity receives your donation before
December 31 if you want to claim the charitable donation credit in 2021.
Donating securities in-kind
Rather than simply making a cash donation, you might consider giving appreciated marketable securities, such as
stocks, bonds or mutual funds. If these securities are donated in-kind from a non-registered account to the charity,
a special rule allows any as-yet unrealized capital gains to be effectively negated by the donation.
 For in-kind donations, confirm that the charity is willing and able (by its bylaws) to accept securities in-kind,
and that it has a brokerage account ready for the purpose. Make sure that the transfer happens no later than
Wednesday, December 29, 2021, allowing for the T+2 settlement date before the end of the year.

20. Registered plan rollovers on death
On death, RRSPs and RRIFs may be rolled over to a spouse or a financially dependent child or grandchild,
without tax applying on the transfer. If the transfer does not happen by December 31 of the year after the year of
death, the amount will be taxable to either the estate or the named beneficiaries on the RRSP/RRIF contract.
 If you are an executor of the estate or named plan beneficiary of someone who died in 2020, make sure that
steps to transfer the plan proceeds to the appropriate beneficiary are completed by the end of 2021, to avoid
the full amount of the plan being taxable in a single year.

21. A good time to review Wills and Powers of Attorney
While not a tax issue, year-end is a good time to think about your estate planning. We tend to see much more of
our family during the holiday season, which is a built-in reminder of what estate planning is all about – the people
around you, and your relationships with them.
 As you review your tax planning, take time as well to consider whether any changes in your property might
cause you to revise when or how you intend to share it with those people.
 Also think about the changes you and others have undergone over the last year and what the next year may
have in store, then revisit your estate planning so you’re comfortable it continues to fit your needs.

Extras to end the year right Expand/Collapse

Canada Recovery Benefit (CRB)
The Canada Recovery Benefit (CRB) is available to employed and self-employed individuals who are directly
affected by COVID-19 and are not entitled to Employment Insurance (EI) benefits. A person may receive $1,000
for each 21 two-week periods, followed by $600 for up to 27 two-week periods. A 10% withholding tax applies at
source, for a net payment $900 or $540 for a 2-week period, depending on your situation.
 The 10% withheld amount may be more (or less) than your final tax due, depending on other income in the
year. You can estimate (with the assistance of a tax preparer if necessary) whether you will owe more, so that
you can set aside enough money for the purpose by the time you file your tax return.
 In addition, if you earn more than $38,000 net income in the calendar year, you must repay $0.50 of the CRB
for every dollar over that level. Again, estimate your expected final income for the year so that you have
sufficient funds to make that repayment if required.
 Please refer to the following link from the Government of Canada for more information on COVID-19 financial
support programs: https://www.canada.ca/en/department-finance/economic-response-plan.html.

Tax refunds and source deductions
Many people receive tax refunds after making their annual RRSP contributions. This usually happens because
the person’s employer was unaware of these non-workplace contributions (and therefore deductions) when
calculating how much tax to withhold when determining payroll deductions.
 You may wish to begin 2022 by filing Form T1213 Request to Reduce Tax Deductions at Source to have your
employer reduce its withholding (if you qualify), allowing you the use of that money, rather than it being a noninterest
bearing deposit with Canada Revenue Agency while you await your refund.

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The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is
accurate or complete. This material is for informational and educational purposes and it is not intended to provide specific advice including,
without limitation, investment, financial, tax or similar matters. This document is published by CQSI and CAM and unless indicated
otherwise, all views expressed in this document are those of CQSI and CAM. The views expressed herein are subject to change without
notice as markets change over time.

 

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