WEALTH Matters — FALL 2011

YEAR-END TAX PLANNING

Summer has officially ended, and even if you’re not heading back to school, it may be a good time to hit the books. Many tax-planning strategies require action before the end of the calendar year, and some research may need to be done to determine how to get the most benefit.

Here are a few examples:

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YEAR END TAX PLANNING

Case Study—LIFE INSURANCE NEEDS

Interest Rate Trends

Investment Market Commentary

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Here are the articles in the current edition. Just click the article names to view each one.

Tax-Loss Selling – sell investments with the largest loss positions to offset capital gains taxed in the past 3 tax years, and claim a refund of the taxes paid. We’ve written more on this strategy here.

Donation of Taxable Gains – are you planning any charitable donations? Don’t give cash – give them investments that contain a high percentage of unrealized gains. You’ll get a tax deduction for the full value donated, but won’t have to declare the gains you made on the investments.

RESP Contributions – you can get up to $1,000 in education grants for your child or grandchild if you make the maximum $5,000 RESP contribution this year ($2500 maximum for 2011, plus up to $2500 to catch up for previous years limits not yet used). But the contribution has to be made by December 31.

RRSP Contributions and Age 71 RRIFs – RRSP contributions can be made until next March 2012, but you should start earlier if you can. If you will be 71 by year-end, we’ve probably already been in touch to help you convert all RRSPs to RRIFs by December 31 to avoid the remaining balance becoming taxable.

Don’t miss the Pension Income Tax Credit - if you are age 65 or over, you can claim a tax credit on the first $2,000 of Pension Income (income from a company pension plan or from your RRIF or LIF). If don’t already have qualifying income, but have an RRSP or LIRA, then you could transfer enough (about $50,000) to a RRIF or LIF to create a minimum payment of $2000.

Defer RRSP Deductions - most of our clients contribute to their RRSP every year that they are working. But the tax benefit is higher when you’re in a higher tax bracket, so if you have an unusually low income this year, it may not make sense to claim the RRSP deduction. You can still make the contribution, but don’t claim it until next year if you expect to have a much higher income then. But if you’re short of cash while your income is low, skip the contribution this year and double up next year when your income is higher – and the tax rate.

Low Income RRSP Withdrawals - If you have a very low income this year, it may even make sense to withdraw money from your RRSP while you can get it out at the lowest tax rate (or tax-free). Even if you don’t need the money, reinvesting it in a TFSA provides the equivalent tax benefit – and it will come out tax free even if you’re in a higher tax bracket at that time.

Some of these strategies don’t work for everyone. We would be glad to help you assess your own situation to see how any of these strategies may work for you.

Please call us if you would like to find out more.

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