As the year winds down and holiday season approaches, our already hectic lives get even busier. Parties, family gatherings, work functions, children’s school events and shopping all compete for precious time.
And if you’re serious about protecting and building your savings, there’s one more thing to add to the list: a mini financial review.
According to Cathie Hurlburt, a senior financial planner with Assante Financial Management in Vancouver, there are three important financial areas that people need to review and, possibly, act on before year end.
“None of these things, in and of themselves, are huge time sucks,” said Ms. Hurlburt, also a member of Advocis, the Financial Advisors Association of Canada. “You can figure out some of this stuff in 10 minutes.”
First on Ms. Hurlburt’s list is maximizing contributions to children’s Registered Education Savings Plans (RESPs). That’s because the beneficiary is eligible to receive government grants for contributions made to the plan up to Dec. 31.
“This is a really big priority from now until the middle of or late December,” said Ms. Hurlburt, noting that a lot of people falsely believe the RESP contribution deadline is the same as that of Registered Retirement Savings Plans (RRSPs) – the end of February.
Families with an annual net taxable income of less than about $80,000 – that’s after RRSP contributions, childcare and other deductions – are eligible for an additional grant of $500 per year, per child, when they contribute at least $500 to an RESP.
“If you’re not contributing at least $500 per year, per child, you’re leaving government money on the table,” Ms. Hurlburt said.
2. Charitable giving
The second calendar-driven financial exercise to do before Dec. 31 is to review and maximize your charitable giving, because receipts from donations this year count as tax credits when you calculate your tax return in the new year.
Even people who donate to charities on a regular basis might want to take some time before the end of the year to review their financial situation and determine whether there are any other causes they can afford to support.
Here it’s important to remember that the federal tax credit rate is 15 per cent on the first $200 in charitable donations and 29 per cent on anything above that. Spouses should ensure that they’re grouping their donations together so that one of them benefits from the higher tax credit rate.
3. Capital loss selling
The last of the financial year-end must-dos applies mostly to people with stock portfolios and non-registered assets. Capital loss selling is like fall cleaning for your portfolio, Ms. Hurburt said.
“Open the closet, see what you’ve got in there that you’re not enthralled with, and if you don’t see a future use for it, sell it. You know you’re selling it at a loss, but you’re deliberately doing that,” she said.
After addressing those “big three” year-end financial planning topics, there are two more time-sensitive, but less critical, areas to review.
4. Health and dental plans
If you have a group benefits plan or extended health or dental coverage, claims usually need to be made before Dec. 31. Some plans allow claims to be made up to 180 days after the end of the year, but you’ll need to check the fine print for that.
If you’ve lost your receipts, don’t just throw in the towel. Most drug stores can give you a printout of all the prescriptions you’ve had filled during the year and can issue duplicate receipts for ones you’ve lost. Likewise, massage therapists and physiotherapists should know how much they billed you over the past 12 months and should be able to issue a summary receipt.
5. Tax instalments
People who are self employed or who have highly variable income receive quarterly instalment requests from Revenue Canada. But before you pay your December instalment, it’s a good idea to check your books and determine whether you actually need to pay that amount of tax at this time. If your income was lower than usual over the past quarter, you’ll owe less tax. And if your income was higher, congratulate yourself and get prepared for a bigger bill come April 30.