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Invest Well. Live Well: Seven year-end planning tips

This year has been one for the record books. Many of us are eager to put 2020 behind us and move forward. With only six weeks left in the year, there are some time-sensitive financial tips to consider before we bid 2020 farewell. 1.
Invest Well Live Well Eric Davis Keith Davis

This year has been one for the record books. Many of us are eager to put 2020 behind us and move forward. With only six weeks left in the year, there are some time-sensitive financial tips to consider before we bid 2020 farewell.

1. Charitable giving: While charities require year-round generosity, the need always seems to be more prevalent around the holidays. With the ongoing pandemic, charities require help more than ever.

• In B.C., all donations in excess of $200 qualify for a combined federal and B.C. non-refundable tax credit up to 49.8 per cent. In short, you get more of a tax break the more you give.

• Donate profitable investments in-kind. Usually when you sell a security, you’re required to pay tax on 50 per cent of the capital gain, but if you transfer that same security directly to a charity, there will be no tax on the capital gain. You will get a donation credit for the full value, plus save paying taxes on the capital gain.

2. Tax loss selling: Not all investments pan out and, this year, investors may have additional losses. Consider selling an underperforming investment and use its loss to offset other gains, thereby lowering tax. A few quick points:

• Superficial loss rule: If you sell any investment at a loss, you must wait at least 30 days before buying it back in any family account; otherwise, the loss is denied for tax purposes.

• All trades must settle before year-end, which is Dec. 29, 2020.

• Losses can be carried back three years on tax returns or carried forward indefinitely.

3. Top up education savings: We believe registered education savings plans (RESPs) are great vehicles to save for kids and grandkids' education.

• The federal government provides a grant of 20 per cent on annual contributions of up to $2,500 per child and a lifetime limit of $7,200 per child. One could get $500 annually from the government.

• Generally, a subscriber can contribute up to Dec. 31 in the year a child turns 17.

• You can also make up for missed years. You can make a maximum $5,000 RESP contribution in one year and receive a grant of $1,000.

• Check with Service Canada on limits at 1-888-276-3624.

4. Income harvesting: If you are in a lower income tax bracket or have several tax credits available (e.g. medical expenses, age credits, dividends etc.), it may make sense to draw more income before year-end. This can be done by:

• Harvesting capital gains from your portfolio: You could then use proceeds to top up your tax-free savings account (TFSA) account if room is available.

• Withdrawing additional income from your retirement saving plan (RSP) or retirement income fund (RIF).

• Drawing more income from your business

5. Withdrawal from your TFSA: If you plan to use funds from your TFSA in 2021, consider drawing them out now. You are allowed to re-deposit funds the following calendar year after a withdrawal. In theory, you could replace funds early in 2021 by drawing them out now versus waiting another year if you withdraw in January.

6. Convert some of your RSP to RIF at age 65: If you are 65 or older and have no sources of eligible pension income (CPP and OAS are not considered eligible pensions), you can withdrawal $2,000 from a RIF tax-free by using the federal pension credit. Do so by electing a partial transfer of assets from RSP to RIF, leaving the rest in RSPs until you turn 71. RSP withdrawals do not qualify.

7. Contribute to a registered disability savings plan (RDSP): RDSPs are tax-deferred saving plans available to Canadian residents eligible for the disability tax credit. Depending on the net income of the beneficiary's family, the government may contribute up to a maximum of $4,500 in grants and bonds per year of eligibility.

These are some considerations people can take advantage of before year-end. As always, please check with your tax professional before enacting any of the above strategies.

Until next time, Invest Well. Live Well.

Written by Keith Davis. This document was prepared by Eric Davis, vice-president, portfolio manager and investment advisor, and Keith Davis, investment advisor, for informational purposes only and is subject to change. The contents of this document are not endorsed by TD Wealth Private Investment Advice, a division of TD Waterhouse Canada Inc.-Member of the Canadian Investor Protection Fund. All insurance products and services are offered by life licensed advisors of TD Waterhouse Insurance Services Inc., a member of TD Bank Group. For more information, call 250-314-5124 or email Keith.davis@td.com.