My neighbour, Henry, is starting to show signs of aging. He turned 87 last week. "Tim, at my age I don't do drugs any more. I get the same effect just by standing up really fast."
"What life lessons can you share with us, Henry?" I asked him last week. "Tim, buy your cereal for the fibre, not the toy," he said.
"And for crying out loud," he continued, "do something before New Year's Eve to save some tax for this year." Henry specialized in tax during his working years. "Yes, contrary to popular belief, the income tax was invented before I was born – just barely," he says.
In honour of Henry's birthday, I thought I'd share four key tax deadlines between now and year-end, and some strategies to consider.
This is the last day to initiate the transfer of unrealized capital losses from you to your spouse for your spouse to use those losses in 2011. I spoke about this strategy last week. The first step in the strategy is to sell some of your investments that have declined in value. This step needs to be done on or before Nov. 22 to ensure that the strategy can be completed by the end of the calendar year (see last week's article for more details, tgam.ca/DEOA).
If you're going to be subject to U.S. estate taxes (which includes U.S. citizens living in Canada), consider using up your $5-million U.S. estate and gift tax exemption on or before Nov. 22. Why? Some are concerned the U.S. Joint Select Committee on Deficit Reduction may reduce the exemption amount in recommendations expected on Nov. 23. Speak to a tax pro about how to use up this exemption, but ideas can include making gifts to children or trusts for their benefit prior to Nov. 23.
For those required to make tax instalments: The final quarterly tax instalment for individuals is due on Dec. 15. Prepare an estimate of taxes owing for 2011 to ensure you are remitting enough so as to avoid interest charges on late or deficient instalments. If you've already remitted instalments late this year, consider making your Dec. 15 instalment early (even today) to offset any interest charges that might already be accruing.
Dec. 23 is the final day to place a trade with your investment broker to ensure that the trade settlement takes place in 2011. For tax purposes, it's the settlement date that matters. If, for example, you want to sell an investment at a loss to claim the capital loss in 2011, keep your eye on the Dec. 23 deadline.
Dec. 31 is the final date to make certain payments for a number of tax deductions and credits. Consider this list: Alimony and maintenance payments, charitable donations (you can donate online to the charity of your choice at canadahelps.org, as late as 11:59 p.m. on Dec. 31), medical expenses (for you or a family member), child care and child fitness and artistic activity expenses, final contributions to your RRSP (if you're 71 in 2011), public transit passes, legal fees to collect unpaid employment income, moving expenses (make the move before year-end if you're moving to a lower-taxed province; you'll face tax in that province for the year rather than your current province), political contributions, safety deposit box rental fees (not deductible in Quebec), tuition fees and text books, interest on student loans, investment counsel fees and other investment expenses, and contributions to a registered pension plan.
If you're an employee and are driving an employer-provided vehicle, you have the option to notify your employer in writing by Dec. 31 of your intention to use the "alternative method" of calculating your taxable operating cost benefit (you must use the vehicle at least 50 per cent of the time for business), which can result in tax savings to you. See a tax pro for more details.
Finally, for those who are thinking of buying certain capital assets for use in their work or business: Dec. 31 is the last day to buy these assets and ensure they are available for use to permit a deduction in 2011 for capital cost allowance (depreciation).