Personal Tax Planning for Canadians as We Approach the 2021 Calendar Year End

The Covid Pandemic brought about an unprecedented coordinated financial support from all central banks to assist individuals and businesses to cope with the financial losses brought about the closure of the world economy. As a consequence, most asset classes, particularly speculative assets, saw huge value appreciation due to the coordinated quantitative easing measures undertaken by these central banks. 

Vancouver Tax Planning Advice: How To Avoid Large Tax Bill Come April 2022

Many investors realized massive capital gains during the early part of the 2021 calendar year.  As the 2021 calendar year end approaches, tax planning should be undertaken now to avoid a large tax bill come April 2022. 

Below are some tax planning actions to consider:

  1. Donate the publicly traded shares/mutual funds with the biggest embedded appreciation.  Capital gains embedded in shares that are transferred in kind to a qualified charity are taxed at zero percent inclusion rate in addition to receiving the full market value of the donation as a donation credit.  Note that cryptocurrency has enjoyed huge appreciation during 2021 but it does not qualify for this preferential treatment of zero percent inclusion rate at this time. 
  2. Maximize your RRSP contribution and hence deduction.  This advice needs no further explanation.  However, many taxpayers still do not understand how to optimally use the RRSP contribution limit.  Many young taxpayers do not even want to contribute to an RRSP, they only want to buy real estate outside of the RRSP.  Buying an RRSP in a high-income year is like getting a 53% return on your investment right off the bat. 
  3. Buy a tried and tested flow through for tax write offs.  (My investment advisor tells me most flow throughs generally do not generate positive return on the investment even after taking the tax refunds into account.) 
  4. Deduct interest accrued on debt incurred to purchase investment assets.  Interest on the investment loan can continue to be deducted as long as the taxpayer acquires another investment with proceeds from the sale of the initial asset. 
  5. Sell securities with accrued losses before year end to crystalize capital losses to offset the capital gains.  Note that if the taxpayer waits more than 30 calendar days to reacquire the identical asset, the losses will be allowed.
  6. Delay taking out dividends from a connected CCPC.  Normally, the shareholder/manager plan with the tax advisor to determine the optimal amount of dividend remuneration.  This amount can be deferred if the taxpayer is already in the highest tax bracket for the 2021 calendar year.  Also to consider is the grip balance, if any, to draw eligible dividends.

In planning to reduce 2021 personal income taxes with above suggestions, watch out for the Alternative Minimum Tax and plan accordingly.

If your investments did exceptionally well during 2021, start planning now. 

Vancouver Personal Tax Planning Services

We’re Mew and Company, your Vancouver Chartered Accountants, and we’re here to help! Give us a call at 604-688-9198 and enjoy peace of mind, knowing you can depend on the experience and expertise of a professional chartered accountant.