As the holiday season approaches most of us are focused on spending time with family and friends. It’s also the opportune time to implement final income tax strategies and be mindful of how existing and new tax changes can effectively reduce your 2021 tax bill. Here is a laundry list of strategies to consider for 2021.
7-year-end tax strategies for you to consider
Table of Contents
Investor strategies
December 29 is the investment trade deadline for 2021
You can trigger capital losses to offset capital gains.
Capital gains are realized when you sell an asset for more than its original cost.
By donating investments directly to a charity, you receive tax credits and a tax exemption on capital gains.
TFSA withdrawals made this year will be added to your TFSA contribution room in 2022.
A $1,500 contribution to an RDSP may entitle you to a government grant of up to $3,500
RRSP strategies
The maximum RRSP contribution limit for 2021 is $27,830.
Withdrawals from a spousal RRSP may be taxed to the contributing spouse if contributions are made in the year of withdrawal, or preceding two years
The Home Buyers’ Plan allows you to withdraw up to $35,000 tax-free to buy or build a home
You have 15 years to repay the funds you withdrew from your RRSP under the HBP.
Tax may be payable if you miss your HBP repayment
Retiree strategies
You must convert your RRSP to a RRIF before the end of the year you turn age 71
CPP / QPP retirement benefits can begin as early as age 60 and deferred as late as age 70
RRIF income is eligible for pension splitting at age 65
Contributions to CPP after age 65 are optional, if you’re still working
Employee strategies
A company vehicle is a great perk, but it comes with tax implications
You can ask your employer to reduce source deductions in certain situations
Family strategies
Income splitting may be beneficial when you can shift income to a lower-taxed family member.
An RESP is a great savings plan for a child’s education.
The CRA prescribed rate for Q4 2021 is 1%.
Your December 15 income tax installment may not be required
Tax credits provide a dollar for dollar reduction in income taxes
Paying adult children for child care is another way to income split.
Spouses/partners can combine their medical expenses, and it is usually best to have the lower-income spouse claim all medical expenses.
Most, but not all trusts are taxable at the highest marginal tax rates
Business strategies
Earning too much passive income can bring higher taxes
You can save on taxes with in-kind donations.
Dividends paid to adult children involved in the business, who meet certain criteria can be a great income-splitting strategy.
Buying your company vehicle can bring a tax break.
Business investment losses can be tax-deductible.
Shareholder loan payments are tax-free
Paying off a loan from your company can save you tax.
Aggregate gifts or awards in excess of $500 are taxable to the employees.
Tax reporting
The sale of your principal residence may be entirely tax-free
A T1135 form is required if you own foreign property with a total cost exceeding $100,000
A US person includes a US citizen, US resident, or green card holder
Snowbirds who spend on average four-plus months in the US on a regular basis may be considered US residents for tax purposes.
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