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(Fred Lum/Fred Lum/The Globe and Mail)
(Fred Lum/Fred Lum/The Globe and Mail)

Tax Matters

What last year's tax changes will mean to you in 2010 Add to ...

This is the time of year for reminiscing.

As I look back, I recall the year my roommate Cary and I set a new (unofficial) world record for keeping our Christmas tree intact after the holiday - until July 5th. Just to clarify, we did remove the decorations and moved the tree to the garage shortly after Christmas, but missed the day the city was coming around to collect them. And so, there the tree sat. Right next to the Halloween pumpkin.

There's a lot to be learned from looking back over the past year - or several years - and deciding how things that transpired in the past should affect how to live in 2010. This year, for example, there will be no Christmas tree or pumpkin in our garage. My wife Carolyn won't have any of that.

Yet, things that transpired in 2009 should influence how most of us act in 2010 when it comes to taxes. There were some key tax changes in 2009.

Let's look at some of those changes, and what it should mean for you in the new year.

Your home

Home renovation tax credit. Don't forget that you may be entitled to cash in your pocket of up to $1,350 as a result of the Home Renovation Tax Credit. Make eligible expenditures before Feb. 1, 2010. (You can read my article online, at tgam.ca/GA1 for more details.)

First-time home buyers. The 2009 federal budget introduced the First-Time Home Buyer's Tax Credit, worth up to $750. This credit applies to home purchases after Jan. 27, 2009. Given how low interest rates continue to be, plus this new tax credit, early 2010 may be a great time to consider buying a home.

Investor Education:

  • Should I buy a home now, or wait and save more money?
  • Understanding house prices
  • Is it better to buy a home, or choose some other investment? Charlie's story
  • What makes buying a home different from other investments?
  • What are some renovations that add value to my home?

EcoEnergy retrofit program. Our government is offering cash back to homeowners who undertake certain "green" or "ecofriendly" renovations. The grants vary in amount depending on what renovations you're undertaking. Check out www.ecoaction.gc.ca for more, and consider making those renovations before Feb. 1, 2010, to also receive the HRTC.

Your employment

Loyalty programs. In 2009, Canada Revenue Agency (CRA) changed its administrative policy on loyalty programs. It used to be that employees would face tax on loyalty points, such as frequent-flier points, earned on work-related expenses charged to the employee's credit card. This is no longer the case, provided the points are not converted to cash, and the arrangement with your employer is not indicative of an alternative form of remuneration, or for tax-avoidance purposes. So, where possible in 2010, consider charging more of your work-related expenses to your own credit card. Just watch the criteria mentioned.

Employer-provided vehicles. Employees who use employer-provided vehicles typically face a taxable benefit on the personal portion of the vehicle usage. CRA will now provide relief if your employer requires you to use the provided vehicle for business only. Make sure you have another vehicle you can use for personal travel. Go out and buy an older clunker in early 2010 for this purpose if you have to.

Your investments

Tax-free savings accounts. We're heading into the second year for tax-free savings accounts (TFSAs). If you didn't contribute to a TFSA in 2009, you'll be able to contribute $10,000 in 2010 ($5,000 for each of 2009 and 2010). This investment vehicle should be a no-brainer. Make a contribution in early 2010 if you can.

Investor Education: TFSAs

  • TFSA or RRSP: How to choose?
  • Note to Flaherty: TFSAs are good but they can be so much better
  • Using a TFSA can help get retirement plans on track
  • The right way to use a Tax Free Savings Account
  • Learning from TFSA's rule book

Losses on marketable securities. In the court decision Baird v. The Queen (2009), the taxpayer reported losses on the sale of securities as business losses, not capital losses, which allowed him to deduct those losses against his other income (not only capital gains). This treatment may be warranted in some cases where your behaviour is akin to a "trader" in securities and you consistently report your profits and losses in the same manner from year to year. (The taxpayer in this case was not consistent in his treatment.)

In 2010, if you do a lot of trading and want your losses to be considered business losses, do two things.

First, undertake your frequent "trading activities" in a separate investment account from your longer-term investing that will be more appropriately considered capital in nature (capital gains and losses). And second, seek professional tax advice to make sure you're covering your bases if you hope to report your profits and losses this way.

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