By Jillian Koch - JMH & Co

Top 5 Last Minute Tax Planning Opportunities

Dec 15, 2021 | 3:12 PM

Maybe it’s just me but the last twelve months have just flown by and I’m not quite ready to step into 2022 just yet. What that also means, is that I didn’t do much in the way of tax planning for myself throughout the year. If you are in the same situation, don’t worry too much. There are still a couple of weeks to take advantage of some tax credits and deductions for your upcoming taxes.

1. Donations

Maybe it is just me, but it gets harder and harder to come up with Christmas gifts every year. As a child, I could give my parents a page length full of gifts from the Sears Wish Book.

Donations are a great alternative for those who don’t really want anything. Perhaps your loved one wants to save the tigers, is passionate about supporting local organizations or wants to contribute to Cancer research. Whatever their passion, there is likely an organization that could use their support and a registered charity will provide you with a gift as well in the form of a tax credit. Win-win!

So what do you actually save? Let’s say that you make $5,000 of donations during the year. That will give you a total tax savings of approximately $2,450 (almost 50% of the donation). You get a tax savings of 25% on the first $200 of donations and then 50% for anything above that (if you earn over $216,500 make that 54%).

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2. Capital Gains & Losses

If you have a good investment advisor, they might suggest that you trigger some capital gains or losses at the end of the year. If you are in a lower tax bracket this year (and expect your income to only increase), it might make sense to trigger some gains now and take advantage of the lower tax rate.

Or perhaps you had quite a few losses that were triggered at the start of the year. As capital losses can only reduce your capital gain income (and not other income sources), you might want to trigger some gains in order to use up the losses now rather than later.

Keep in mind that your last day to initiate a Canadian stock transaction is December 29, 2021. Any transactions completed after that date will be settled in 2022.

3. RRSP Contributions

Although the RRSP deadline isn’t until February 28, 2022 this year, you may want to start planning your contributions now.

We’ve talked before about whether RRSPs might be the correct fit for you. An RRSP contribution acts as a deduction from your total income, reducing the amount of income that is taxable. If you received a Christmas bonus of $10,000, it might make sense to toss that bonus into your RRSP so that you aren’t paying any tax on that additional income.

4. RRSP Withdrawals

Most people don’t make RRSP withdrawals until retirement. However, perhaps this year you had little income. If that is the case, you might want to create some income to take advantage of that first tax bracket (your first $49,020 of taxable income).

Just note that if you do choose to make withdrawals from your RRSP that the bank will withhold tax for you at a rate of 10, 20 or 30% (depending on the amount withdrawn). And unlike your TFSA, you don’t regain contribution room in your RRSP when you make a withdrawal.

5. Medical Expenses Timing

Sometimes, you have little ability to plan around medical expenses – as you get booked in for that dental crown when they can fit you in and not when it’s best for you tax wise.

However, it is best to bundle your medical expenses in one twelve month period rather than trying to spread it out over eighteen months. For tax purposes, medical expenses are reduced by the lower of 3% of your net income and $2,421. Let’s say you have $5,000 worth of medical costs (and about $64,000 of taxable income). If you paid that in one twelve month period, you could end up with eligible expenses of $3,080. If you had that same $5,000 spread across two years, you might only be getting $580 per year.

As you finish wrapping those presents and baking cookies for Santa, remember these last-minute items that will help you out and consider talking to your trusted accountants at JMH&Co before it’s too late!