2016 is quickly approaching, however, there is still an opportunity to review your finances and investments in order to take advantage of some year-end tax planning strategies.Below are some strategies for Investment Accounts and Retirement Plans

Tax-Free Savings Account (TFSA) dollar limit for 2015*: 

$10,000

*based on current legislation

Registered Retirement Savings Plan (RSP) limit for 2015: 

$24,930

Investors

Review the asset allocation in your portfolio

Examine the type of income you earned in your non-registered portfolio in 2015. If you earned interest income, which is highly taxed (i.e., unlike dividends or capital gains which are more favourably taxed), consider restructuring your non-registered portfolio for better tax efficiency in 2015 and subsequent years.

Review your debt

Is the interest cost you pay on your debt deductible? If not, and you have other non-registered investments, consider selling some or all of these investments (but first calculate the tax cost of selling the investments) and using the money from the sale to reduce your debt. Then re-borrow the money to replace your non-registered investments. This strategy may provide you with an interest expense deduction in 2015 (and future years) since the interest cost on your new debt may be deductible.

Observe investment selling deadline for 2015

If you want to sell stocks and realize accrued capital gains or losses in 2015, the settlement date (not the trade date) on the sale needs to occur in 2015. To ensure this happens, you’ll have to initiate the sale on or before Thursday, December 24, 2015 (for Canadian securities markets).

Time your purchase of certain investments

If you plan on investing in an interest-earning security (like a GIC) with a maturity period of one year or longer, you might want to wait until 2016 before purchasing this investment. If you wait until 2016, you won’t have to pay tax on any accrued interest on this investment until 2017 – the year of the first anniversary of your purchase. You may also want to wait until early 2016 to purchase any mutual funds that may make taxable distributions before the end of 2015, in order to avoid paying the tax any earlier than necessary.

Time withdrawals from your TFSA

If you plan on withdrawing funds from your TFSA, consider withdrawing funds in 2015 instead of in early 2016. Withdrawals from your TFSA in 2015 will be added to your TFSA contribution room in 2016; however, if you were to withdraw the same funds in early 2016, the amount would not be added to your TFSA contribution room until 2017.

Realize accrued capital losses before year end

If you realized capital gains in 2015, or in any of the three previous years (2014, 2013 or 2012), you could consider selling your investments which have decreased in value (have an accrued loss) in order to use these capital losses against your capital gains. There is an ordering rule that says capital losses have to first be used to offset capital gains in the current year. Therefore only the excess capital losses may be carried back to the three previous years. Carrying back capital losses may enable you to get a refund of previously paid income tax that can be used for investments or to pay living expenses. Capital losses can also be carried forward indefinitely. Be aware of the superficial loss rules, as losses may be denied if the same investment/property is purchased 30 days before or after the sale.

Realize capital gains if appropriate

It may make sense for you to trigger a capital gain before the end of 2015 if realizing that capital gain doesn’t result in tax. For example, this might apply if you have capital losses that can be used to shelter the capital gain from tax, or if the capital gain will be taxed in the hands of another person who has little or no other income (e.g., an in-trust investment account for your child(ren)). In such cases, triggering the capital gain by selling an appreciated security and reinvesting the sale proceeds allows you (or your child(ren)) to have a new increased adjusted cost base in the investment without triggering a significant tax liability. This may save you (or your child(ren)) tax on a future sale of this investment. It may be worthwhile to note that there is no superficial gain rule, so gains are recognized for tax purposes.

Defer realizing capital gains if appropriate

If you want to sell stocks at a profit and the sale will give rise to a tax liability, you may want to consider delaying the sale until after December 24, 2015 in order to defer the taxes payable until May 1, 2017, since April 30, 2017 falls on a Sunday.

In this case, for gains realized in 2016, the taxes owing are not payable until May 1, 2017, i.e., the due date for filing your 2016 personal income tax return. For example, if you place a sell order for securities on December 29, 2015, this trade should not settle until January 2, 2016 and therefore would be reportable by you when filing your 2016 personal income tax return.

Claim a capital gains reserve

If you’re considering selling capital property before December 31st for a profit, consider negotiating the sale so you can collect the sale price over a period of time greater than one year. Under certain circumstances, you may be able to report the capital gain (and pay the tax) over a period as long as five years (including the year of sale), if you receive payment over this five year period. At a minimum, you should consider receiving part payment in 2015, and part payment in January 2016, in order to spread the tax liability at least over two years (2015 and 2016). You should consult with your professional tax advisor to properly structure the receipt of your sale proceeds in order to claim a capital gains reserve.

Take foreign exchange gains and losses into accoun

t

When selling foreign assets, it is important to take into consideration the effect of the foreign exchange at the time of purchase and at the time of sale. Since the Canadian dollar has declined in value relative to other foreign currencies in 2015, the foreign currency translation may impact any capital gains/losses realized.

Donate public securities with accrued gains to charity

Making a charitable donation by December 31st may provide you with a donation receipt that can be used to reduce your tax payable or possibly increase your tax refund for 2015. If you’re considering selling any publicly traded securities, you may want to consider donating these securities instead to a charity. Any capital gain realized on your donated public securities is not subject to tax and yet you are still entitled to a donation receipt for the full fair market value of your donated securities. Therefore, donating with public securities having an accrued gain makes better income tax sense than either donating with cash or selling the securities and then donating with the sale proceeds.

Claim your $813,600 capital gains exemption

The $813,600 (in 2015, and indexed for inflation) capital gains exemption is available to shelter capital gains on the sale of qualifying small business corporation shares and qualifying farm/fishing property. You may want to trigger capital gains on this type of property before December 31st in order to claim your capital gains exemption. There may be strategies for you to consider when claiming your exemption without giving up control over this property. If you have cumulative net investment losses (CNIL) on December 31, 2015, you may not be able to claim your full capital gains exemption until your CNIL balance is zero. A CNIL arises when your investment expenses are greater than your investment income. Therefore, increasing your investment income (i.e., earning interest or dividend income) helps lower your CNIL. You should consult with your professional tax advisor to determine the utility and consequences of claiming your capital gains exemption.

Retirement Plans

Contribute to your RSP

You have until Monday February 29, 2016 to make a contribution to your RSP that would enable you to claim a deduction on your 2015 personal income tax return. You may also make a non-deductible excess contribution to your RSP to get more money working for you in your tax- deferred RSP. If you keep your cumulative over- contributions at $2,000 or less (at any time), the 1% penalty tax on over-contributions won’t apply.

Reduce your unused RSP contribution room

If you have been contributing less than the RSP contribution limit available to you, you will have unused RSP contribution room. If you have enough cash flow, you could consider making extra contributions to your RSP to use your unused RSP contribution room in 2015, resulting in more money being saved for your retirement.

If your taxable income is in a low tax bracket and your taxable income is expected to increase to a higher tax bracket in the future, consider delaying the RSP contribution deduction to a future year when your taxable income is in a higher tax bracket.

Borrow to contribute to your RSP

Borrowing money to make an RSP contribution may be beneficial if the investment return in your RSP is greater than the interest being charged on the RSP loan. While the interest expense incurred on a RSP loan is not deductible for income tax purposes, you can reduce your interest expense on the RSP loan if you use your tax refund to pay down your RSP loan balance.

Split income by contributing to a spousal RSP

If you contribute to a spousal RSP before December 31st, you can reduce the length of time that should pass before your spouse or common-law partner (Partner) can withdraw money from this spousal RSP without the attribution rules applying to tax (some or all) the Partner’s withdrawal in your hands.

For example, if you contribute by December 31, 2015, your Partner could withdraw those dollars on January 1, 2018 (at the earliest) without his/her withdrawal being reportable and taxable in your hands (attributed back to you). This also assumes you don’t make additional contributions to a spousal RSP in the years 2016, 2017 and 2018. However, if you were to wait until January 1, 2016 to contribute to a spousal RSP, your Partner will have to wait until January 1, 2019 (i.e., a full year longer) before taking a withdrawal from a spousal RSP without attributing this withdrawal to you. Again, this assumes that you don’t make contributions to a spousal RSP in the years 2017, 2018 and 2019.

71 years of age this year? Make an advance contribution to your RSP

If you are 71 years of age in 2015, December 31 is the last day you can contribute to your RSP and the deadline for winding up your RSP. You may want to make your RSP contribution before this deadline in order to benefit from the tax-deferred growth of your money inside your RSP sooner. However, if you also have earned income in 2015 which can provide you with RSP contribution room in 2016 (or have unused RSP contribution room), you might consider making your 2016 contribution (or using up your unused RSP contribution room) before December 31 when your RSP matures. While you may incur a small over-contribution penalty for the month of December 2015, you should be entitled to a deduction in 2016 for your RSP contribution (made in December 2015). This RSP deduction may save you more tax dollars in 2016, and can ensure that you maximize contributions to your RSP before it is wound up. You should speak with your professional tax advisors to ensure this strategy is appropriate and your planned over-contribution isn't excessive in your circumstances.

Make RSP withdrawals in a low-income year

In some cases, it may make sense for you to withdraw money from your RSP before you retire. For example, if you have little or no other income in 2015, you may be able to withdraw money from your RSP before December 31st, and pay little or no income tax on your withdrawal. You might also consider this strategy if you require some money to meet living costs or are prepared to re-invest the withdrawn money outside your RSP.

Maximize your 2015 earned income

Earned income creates RSP contribution room for you. Accordingly, you might consider increasing your earned income in 2015 to generate the maximum RSP contribution room for 2016. This could be a consideration if you own your business and control the type and amount of your annual compensation. The RSP limit for 2016 is $25,370 and can be reached with earned income of $140,944 in 2015.

Convert part of your RSP to a registered retirement income fund (RIF) before year-end

If you are between the age of 65 and 71 and do not receive pension income, consider setting up a RIF to provide you with at least $2,000 of annual income because you can receive a pension income tax credit on the first $2,000 of eligible pension income. Furthermore, if you’re in the lowest marginal tax bracket, you can receive this $2,000 of income tax-free from your RIF - thanks to the pension income tax credit.

Buy an annuity to take advantage of the pension income tax credit

As described above, if you’re 65 years of age or older, you’re entitled to a pension income tax credit on the first $2,000 of eligible pension income. Since annuity payments also qualify for the pension income tax credit, you could buy an annuity (with some of your RSP money) to provide you with $2,000 of annual income. Again, you can use the pension income tax credit to offset the tax on the annuity income, and if you’re in the lowest marginal tax bracket ($44,701 or lower federally for 2015), you would pay no federal income tax on this annuity income. However, if you are in a higher marginal tax bracket, you could have some income tax to pay on this annuity income.

Base RIF withdrawals on the age of the younger Partner

If you are age 71 in 2015, you have to wind down your RSP by December 31st. Accordingly, you may likely be transferring most if not all of your RSPs to one or more RIFs before year-end. If you have a younger Partner, you may want to consider having your mandatory (i.e., minimum) RIF income withdrawal based upon the age of your Partner. This decision could reduce your required annual RIF minimum income, and allow you to defer tax on your RIF for a longer period of time.

Delay and properly time Home Buyer's Plan (HBP) withdrawals

Under the HBP, you are able to withdraw money from your RSP and use that money towards the purchase of a home. However, the home has to be purchased prior to October 1 of the year following the year you withdraw the money. Accordingly, given that this is now late in 2015, you may want to consider waiting until early in 2016 before making a HBP withdrawal from your RSP. This strategy may assist you by extending: i) the time by which you have to buy a home (i.e., prior to October 2017 instead of prior to October 2016 if you withdraw before money before December 31st) and ii) the time until you have to start making repayments under the HBP. In addition, although multiple RSP withdrawals are allowed under the HBP, generally you have to make all of your HBP withdrawals in one calendar year. Therefore, you may want to consider waiting until 2016 before making any RSP withdrawal(s) under the HBP.

Make your required HBP repayment

If you withdrew money from your RSP under the HBP in 2013, you have your first repayment due in the 2015 tax year (i.e., before the end of the 2nd year following the year of your HBP withdrawal). This repayment can be made as late as February 29, 2016 (i.e., your 2015 RSP contribution deadline). You should not forget to make a contribution to your RSP for 2015, otherwise you may face income tax on any deficient repayment amount. Schedule 7 "RRSP Unused Contributions, Transfers, and HBP or LLP Activities" of your 2015 personal income tax return is used to designate the amount of your repayment to your RSP under the HBP.

If you have any questions or would like further details regarding the above tax planning strategies, please 

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