C2

Roger Haineault

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Speak Up

With the trick-or-treaters now out of the way and the calendar flipped to the second last month of the year, "ho, ho, hold the payments" jingles are guaranteed to be heard any day now.

And while you might not be able to hold it, by doing a little planning now, you might just be able to lower your payment on your tax bill next April.

Over the next couple of weeks we're going to consider some ways to reduce the tab without potentially becoming a guest of the federal government.

There are two main areas to consider: items that increase your taxable income, and claims that you can make to lower it. This week we're going to look at the income side of the equation.

Sometimes people receive year-end bonuses in addition to their normal wages. Income paid out by Dec. 31 will ultimately be calculated into the tax bill you see next spring. Delaying it until January means that you'll only have to deal with it in April 2011.

Investment income is comprised of interest, dividends and capital gains. Of the three general categories, interest is the most thoroughly taxed. If you can tolerate some risk, consult a financial planner or investment counsellor and consider broad-based mutual funds or high-grade stocks held outside a Registered Retirement Savings Plan (RRSP) in order to increase your dividends and capital gains earnings. I was in front of a group the other evening, and once again, the whole eligible dividend tax reduction thingy had them oohing and ahhing. Please, no comments about the circle I travel with.

However, hold up on any mutual fund purchases in December, as many funds make year-end distributions and issue T-slips that you will have to declare. Instead, buy just after the distribution, when the unit cost will be lower. (On the other hand, next week we'll look at what appears to be a contrary position in the deductions section).

The markets have been onerous for many investors over the past few years, as more than a few of us have bought dogs. In the event you didn't know, you are allowed to deduct capital losses against other capital gains, so this might be a time to consider selling some of those under-performing stocks and funds. You will then be able to take those losses and apply them against any gains that you might have earned this year. Any leftover capital losses can then be used to adjust returns in preceding years (if you had declared capital gains), and pick up some additional refunds, or be carried forward to some future year.

What if you really like those investments, and believe that they are going to come back to life in the future? Through a concept known as tax loss selling or 'crystallizing,' you may sell the security, and as long as you didn't acquire it 30 days before the sale, or reacquire it in the 30 days after the sale, the loss will be valid from Canada Revenue Agency's perspective.

In effect, you can sell today, trigger a capital loss and repurchase the security before the new year. You can then apply this loss against other capital gains. Just remember to consider all the intangibles such as exit fees or the new cost to acquire if the price goes up. This is a concept that a many New Brunswickers took advantage of to avoid the capital gains generated as a result of the Aliant income trust conversion a few years back.

Next week we'll take a look at strategies to adopt in order to lower your taxable income.

* Roger Haineault is with Tax Help/Help 4 Taxes. He can be reached by e-mail at roger@help4taxes.ca or by calling 855-HELP (4357). His column appears Tuesdays.