Although many of us don’t even think about our personal or corporate taxes until the time comes to file, much of the stress of tax season can be avoided by understanding that your year-end tax bill is not yet set in stone. With a few weeks left in 2019, for most taxpayers there is still time to take action and make decisions that can help plan for, or reduce your final balance owing for the year. The following are some key considerations for both Individuals and private corporations to make before December 31, 2019:
- Consider making an eligible charitable donation in order to claim as a credit on your 2019 tax return. The combined federal and Alberta charitable donation tax credit is 25% for amounts up to $200, and 50% for additional amounts.
- Consider making an eligible political contribution in order to claim as a credit on your 2019 tax return. The credit for federal contributions is 75% on the first $400, $50% on the next $350, and then 33.33% on remaining amounts up to a total of $1,275. The credit for Alberta provincial contributions is 75% on the first $200, 50% on the next $900, and then 33.33% on remaining amounts up to $2,300.
- Consult with your investment advisor and consider selling investments to trigger capital losses that can be used to offset capital gains realized during the year. The last trade date for transactions to settle in 2019 will be December 27, 2019. (NOTE – Superficial loss provisions must be considered when securities are being sold and then re-purchased at a later date)
- Review your tax installment payment schedule for 2019. Final installments are often due on December 15 and including a payment as soon as possible for any installments that have been missed during the year can help reduce instalment interest which is charged at a rate of 6%.
- Consider maximizing your Tax-Free Savings Account contributions for the year. The TFSA contribution limit for 2019 was $6,000, plus an unused amount from previous years. The contribution limit for 2020 will be an additional $6,000 available on January 1, 2020.
- For individuals that turned 71 in 2019, any final RRSP contributions must be made prior to December 31, 2019.
- Considerations for corporations are based on a December 31, 2019 year end, however, many of these considerations will have the same application regardless of fiscal year-end date.
- Review your shareholder loan balance and determine if any funds should be re-injected into the corporation prior to year-end. Funds re-injected by year-end may reduce the remuneration required for the current year.
- Review remuneration strategies and consider paying additional remuneration to shareholders in order to utilize lower tax brackets (NOTE – It is important to also consider Tax on Split Income rules for dividends paid and you should be able to support what amounts can be paid to each shareholder without triggering these rules. Contact your accountant to discuss).
- Consider that it may be necessary to pay additional remuneration to shareholders (i.e. bonus or dividend) in order to draw down excess cash in the corporation that could jeopardize the status of the corporations shares as Qualified Small Business Corporation (QSBC), or Family Farm Corporation (FFC) shares.
- A corporation subject to the Alberta general tax rate (on income in excess of the available Small Business Deduction limit) should consider maximizing discretionary deductions in 2019 as the general rate will decrease from 12 percent (at the beginning of 2019) to 10 percent starting in 2020.
- In planning for the purchase of depreciable assets should consider whether purchases can be completed and assets made available for use prior to the corporation’s year-end. This will ensure that the corporation can take advantage of the Accelerated Investment Incentive in the current year, which allows for 1.5 times the standard Capital Cost Allowance deduction on most classes of depreciable property in the year the property becomes available for use (usually provided delivery of the asset has been taken prior to the end of the year.
- In planning for the disposition of depreciable property should review the potential triggering of recaptured depreciation resulting from the disposition and if the sale of the asset can be delayed until the next fiscal year, allowing for the recapture income to be deferred.
- For farm corporations, consider purchasing additional crop inputs prior to your year-end for use in a subsequent crop year. Farms operating on a cash basis can claim prepaid inputs as a deduction in the current year.
- Consult with your investment advisor and consider selling investments to trigger capital losses that can be used to offset capital gains realized during the year. The last trade date for transactions to settle in 2019 will be December 27, 2019. (NOTE – Suspended loss provisions must be considered when securities are being sold and then re-purchased at a later date)
- Triggering capital losses prior to year-end year can also help prevent the corporation and its associated group from exceeding the $50,000 limit for passive income and the resulting Small Business Deduction grind that applies where this threshold is exceeded.
- Consideration should also be made as to how the triggering of capital losses prior to year-end may impact the availability of Capital Dividend Account (CDA) balances. In some cases, it may be prudent to elect for available CDA to be paid out to shareholders prior to the triggering of losses.