Wealth Strategies: Tax changes - A year-end, post-election checklist

Tax changes - A year-end, post-election checklist

We, as Canadians, have had numerous tax changes to absorb as of late with a new government in power federally and, for Albertans, provincially as well. These changes present a small window of opportunity to act prior to new rules taking effect in 2016.  Year-end is always a prudent time to review your tax planning checklist in any case, but given the current transitional climate, the year-end review now takes on even more significance with regards to potential tax savings, deferral or minimization.

KPMG has compiled a basic checklist of tax issues to consider before 2016: 

• Your top income tax rate for 2016
• Your stock options
• Your investments
• Family tax considerations
• Retirement and estate planning
• Administrative considerations
• Other possible post-election tax changes

Top income tax rate for 2016: One of the more intuitive strategies for dealing with the expected increase is to accelerate income for 2015, while we still enjoy lower tax rates.  Part of this strategy could also include the deferral of expenses or deductions until 2016.  Below is a summary of the marginal tax rates and changes, province by province.  Individuals should consider accelerating income into 2015, versus 2016, if they are affected by the new Federal Liberal government’s promise to introduce a new 33% tax bracket (up from 29%) for annual incomes of more than $200,000.  Those at the new top marginal tax rate will realize a 4% federal savings on ordinary income received in 2015 rather than in 2016, which could result in combined federal and provincial absolute tax savings ranging from 1.9% in British Columbia to 7.75% in Alberta. The same absolute tax savings are also available for other types of ordinary income, such as investment income (e.g. interest), revenue from rents and royalties as well as business income earned personally.

 

 

                                                             Source:  KPMG

Stock options: If an investor has more than $100,000 in annual stock option gains, they may want to take advantage of the current 50% stock option deduction before the Liberal government likely caps the amount.

Your investments: For those that own an incorporated business or an investment holding company, issuing additional dividends in 2015 will save you tax, given that rates are increasing in this realm as well.  Tax loss selling is also applicable for any year where unrealized losses have occurred and should therefore be completed before year-end.  These can then be applied to capital gains in the same or three prior years.

Family tax considerations: For those that have a dependent child under 18 and a spouse or common-law partner in a different tax brackets, consider filing early to take advantage of the Family Tax Credit while it’s still available.  This allows income sharing up to $50,000 for eligible couples.

Retirement and estate planning: As always, maximizing your RRSP contributions for the year helps minimize income taxes.

Administrative considerations: Complete any applicable payments due by December 31, 2015 in order to take advantage of their tax savings.  These items may include charitable gifts, medical expenses, investment counsel fees, child and spousal support payments, deductible legal fees, etc.

Other possible post-election tax changes: The new Liberal government also plans to make changes to the Universal Child Care Benefit, student tax credits, employment insurance, Old Age Security and Home Buyer’s Plan.

The bottom line here is to review and address applicable items in the short window of time remaining before year-end, in order to capitalize on any available opportunities prior to the upcoming changes taking effect.