I know, I know. You're busy doing your last-minute Christmas shopping, attending holiday parties and getting the house ready for all the relatives from out of town.
Who has time to think about taxes?
Well, listen up, because if you aren't paying attention you could miss some important tax deadlines in the coming days.
"The end of December marks an important time for many who are looking to minimize the amount of taxes they pay on their income this year," said John Waters, head of tax and estate planning at BMO Nesbitt Burns.
If you aren't thinking about taxes, you have plenty of company. According to a BMO Nesbitt Burns survey, less than one-quarter of Canadians consider income tax return issues before the end of the calendar year. That's understandable, given that most people don't have to file a return until April 30 of the following year.
But if you wait until 2014, you could miss some of the following key dates.
Tax-loss selling
If you want to sell a stock that's depreciated in value and use the loss to offset capital gains in 2013, you have to do so by Dec. 24. Why? Because it takes three business days for a stock trade to settle. Christmas Day and Boxing Day are holidays and don't count, so a trade executed on Dec. 24 will settle on Dec. 31 – the last day for it to count on your 2013 tax return. But when considering such a sale, don't let the tax tail wag the investment dog.
"It is important to ensure that a sale makes sense from an investment perspective, since stocks sold at a loss cannot be repurchased until at least 31 days after the sale," Mr. Waters said. If you (or your spouse) repurchase the shares before then – even if you buy them in a different account – it's considered a "superficial loss" which can't be used to offset capital gains.
Charitable donations (and other credits and deductions)
Charitable donations must be made by Dec. 31 to receive a 2013 tax receipt . Investors should also consider donating securities that have appreciated in value, Mr. Waters said. "This provides a tax credit and could potentially eliminate any capital gains tax on the accrued gain on the security."
Dec. 31 is also the deadline for incurring expenses related to child care, medical costs, children's fitness and arts programs and tuition if you want to qualify for the relevant deductions and credits in the 2013 tax year.
Tax-free savings account withdrawals
Contemplating a TFSA withdrawal to help finance a new car or home renovation? Consider taking the money out by Dec. 31 instead of waiting until the New Year, Mr. Waters said. Here's why: When you withdraw funds from a TFSA, the amount is added to your contribution room in the following calendar year. So, if you make a withdrawal on the last day of 2013, you'll get the contribution room back on Jan. 1, 2014. However, if you make the withdrawal in 2014, you'll have to wait until Jan. 1, 2015, to get the additional contribution room.
Did you turn 71?
If you turned 71 in 2013, Dec. 31 is the deadline for terminating your registered retirement savings plan and choosing one of several options: making a lump sum withdrawal (and paying the tax); converting the RRSP to a registered retirement income fund; or buying an annuity. If you have unused RRSP contribution room, you can make a final RRSP deposit – but you must do so by Dec. 31, not March 1 of next year.
Also, if your spouse is not yet 71, you can still contribute to his or her RRSP if you have contribution room. What's more, even after you turn 71 and you no longer have an RRSP, if you have earned income you will continue to generate RRSP room that you could use to contribute to your spouse's RRSP until the end of the year that he or she turns 71.
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John Heinzl