Ontario and Quebec's wealthiest residents could profit from doing a little tax planning over the next month to minimize the impact of tax increases set to ring in the new year, but they're not the only ones who can benefit from an early strategy.
The marginal tax rates on interest and dividends will increase for Ontario residents earning more than $500,000 and Quebecers making at least $100,000 by an average two percentage points. Increases on capital gains for those earners will increase by 0.8 of a percentage point in Ontario and 0.9 of a percentage point in Quebec.
The most savvy of these top earners can save thousands of dollars by acting before Dec. 31 to exercise stock options or take advantage of opportunities to accelerate bonuses before the new rates kick in, experts say.
Business owners may want to take dividends out of their companies this year, while those receiving severance should try to have payments delayed until 2013.
For those high-income earners, up to $240 of tax can be saved for each $10,000 of income that is accelerated or deductions that are deferred, says Jamie Golombek, managing director of tax and estate planning for CIBC Private Wealth Management.
The tax increases on the wealthy affect less than five per cent of Canadians, but everyone should examine their tax-saving options as mere weeks remain in the year, he said.
"Those rules all apply in general if you think that your income is going to be higher next year and you are going to be in a higher tax bracket," he said in an interview.
Options include deferring expenses to offset higher income next year.
Mr. Golombek said many Canadians drag their heels about tax planning especially as the holiday season rolls around. But failing to heed the deadline could cause people to miss opportunities for tax savings.
"A lot of things have to be done now to be able to get the benefit next spring when you file your return and the biggest mistake is doing nothing."
For the average taxpayer, the biggest tax-saving opportunity is probably to sell poorly performing stock held outside RRSPs and apply the loss against gains from winning stocks.
However, all sale transactions must be done before Dec. 24 to be settled by year-end. The losses can be used against gains over the past three years or carried forward indefinitely.
Tax-loss selling could be attractive to investors of companies such as Research in Motion, Bombardier and SNC-Lavalin, whose shares have dropped in the past year.
H&R Block's senior tax analyst said tax-loss selling is becoming more popular, with interest in the tactic growing about five per cent this year.
"I think people are really starting to understand that there are some benefits to having that, especially when you have a roller coaster year on the markets," Cleo Hamel said in an interview.
Astute investors could sell weak shares and buy them back after 90 days to avoid triggering a "superficial loss."
But Adrian Mastracci says such strategies rarely work and investors should simply get rid of underperforming stocks they no longer have faith in.
"In my mind, don't catch a falling knife and don't get emotionally attached to something. If it's got to go, let it go, there's plenty of other stocks in this world," said the portfolio manager of KCM Wealth Management in Vancouver.
The year-end deadline also applies to making payments such as medical expenses, paying financial advisers, safety deposit box charges, child-care fees, spousal support, prescribed loans for income splitting, converting RRSPs to RRIFs for those who turned 71 and making contributions to receive grants for Registered Education Savings Plans (RESP).
Expenses for children's sports and arts classes in 2013 can be prepaid if parents haven't reached the maximum $500 limit in 2012.
Charitable donations must currently be made by year-end, although a private member's bill has proposed giving taxpayers until March 1 to align the donation timetable with RRSPs.
Business owners can take advantage of Boxing Day sales and also write off a half year of depreciation by purchasing computers and other equipment in 2012.
Canadians who seek help from financial advisers are most likely to take the year-end deadline seriously, but only 30 per cent of taxpayers planned to do something over the next few weeks to help their 2012 tax returns, suggests a survey sponsored by H&R Block.
The Leger Marketing survey found that Canadians at least 55 years of age are the most likely not to do anything, while men are more likely to take action than women as are university graduates.
Tax planning is greatest on the Prairies (63 per cent) and lowest in Quebec, the Atlantic Provinces and Alberta (around 49 per cent).
About 56 per cent of Canadians only think about their tax returns when filing their returns or have a transaction with tax implications, with interest falling as income decreases.
The online survey of 1,502 Canadians was conducted Oct. 29-31 and has a margin of error of plus or minus 2.5 per cent, 19 times out of 20. The polling industry's professional body, the Marketing Research and Intelligence Association, says online surveys cannot be assigned a margin of error because they do not randomly sample the population.