So, you’ve made it through another holiday season and the New Year has begun. If you’re like most people, you probably spent a little more than you would have liked to so the last thing you want to think about is your finances. Good news. Here are some tax-saving tips to help boost your income and better your financial position in 2017.
If you usually write a cheque or use your credit card when making donations during the year, keep in mind that you can actually donate shares instead of cash. This includes shares acquired by exercising company stock options as well. Any gain that is realized on the donation of the shares will not be taxable. In addition, the benefit that is realized when exercising options will not be taxed. In the case of stock options, be aware that you must donate the security in the year that it was acquired, and not more than 30 days after you exercised the options in order to benefit from the tax savings.
Automatic Savings Plan
The TFSA contribution limit for 2017 is $5,500 once again. If you are able to make a lump sum payment in the beginning of the year, this is your best option. In addition, if you can calculate what your RRSP contribution limit is for 2017, the sooner you are able to contribute the better. If you would like to contribute to an RESP and maximize the government grant, you will need to make a $2,500 contribution per child. If you are not able to make all of these contributions at once, now is the time to set up an automatic savings plan with your financial institution. Calculate what you can reasonably afford to save and then determine the priority of your contributions. For example, if you are going to be in a low tax bracket this year, you might be better off making your TFSA contributions first.
RRSP Conversion to RRIF
If you are turning 71 this year and have any type of RRSP (or LIRA), you will have to convert it to a RRIF (or LIF), among other options, by the end of the year. Before you convert your RRSP to a RRIF, you should make your final RRSP contribution. You can also make another contribution in December before you convert your RRSP or LIRA, if you know what your limit will be in 2018. You will have to pay the 1% a month penalty for December, but will still end up ahead long term. Also, if you are going to continue to have RRSP room and your spouse is younger than you, consider setting up a spousal RRSP for them so that you can continue to contribute to an RRSP after you turn 71.
OAS and CPP
If you are turning 60 this year and have not applied for your CPP yet, take a look at the numbers to determine if it makes sense for you to apply for it now or at age 65. Some factors to consider are cash flow, life expectancy and tax implications. If you decide to take it at 60, your pension will be reduced by 0.6% for each month that you receive it before age 65. Or you may choose to defer it to as late as age 70, as every month of deferral will increase your CPP by 0.7% per month. So if you choose to wait until age 70, your CPP will increase by 42%.
You also have the opportunity to delay your Old Age Security until age 70. It will increase by 0.6% per month, up to 36% if you choose to defer it until age 70. Talk to your financial planner about what makes the most sense for you, since your OAS may be clawed back because of other income you are receiving right now. In both cases, if you choose to start your payments at age 65, you should send in your application at least six months before your 65th birthday.
Start the year off by being proactive, and talk to your financial planner about which of these tips you could benefit from most.
Marcy Ages is a passionate, detail-driven provider of financial planning services, including investment management and tax preparation. As founder of The Care Network, Marcy also works with other service professionals to support high-net-worth individuals with their estate planning and assisted living issues.