Waters & Meredith

Serving Niagara..

Year End 2001 Tax Planning Newsletter

CONTENTS

  • Taking Losses
  • RRSP Contribution
  • Donations
  • Medical
  • Bonuses/Salary
  • Early Canada Pension Plan (CPP)
  • Old Age Security Clawback (OAS)
  • Registered Retirement Savings Plan (RRSP)
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    TAKING LOSSES

    1. If you had capital gains in the three (3) years prior to 2001 and you have capital losses in 2001, it might make sense to take the losses this year.


    2. Capital losses in 2001 may be carried back up to three (3) years, resulting in income tax recoveries.


    3. The taxable portion of capital gains in 1998 and 1999 was 75% of the capital gain, and the income tax rates were higher.


    4. A taxpayer cannot transfer an investment with a loss to their RRSP and claim the loss.


    5. A taxpayer can sell an investment, taking the loss and purchase the same investment in a RRSP.


    6. A taxpayer cannot sell an investment and repurchase the same investment within 30 days and claim the loss. One must wait 31 days to repurchase the investment.

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    RRSP CONTRIBUTION

    1. The RRSP contribution allowable is based on one's earned income in the prior year. It is 18% of the earned income.


    2. For those with pension plans, the allowable contribution is reduced.


    3. The maximum RRSP deduction is shown on a taxpayer's Notice of Assessment for the prior year.


    4. If one has a capital gain on an investment and wishes to transfer it to a RRSP, this is allowed. You report 50% of the capital gain as income and deduct 100% of the value of the investment.


    5. One could transfer the investment in January or February 2002 to have the RRSP deduction in 2001 and the capital gain in 2002.

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    DONATIONS

    1. Donations may be made in cash, but they may also be a donation of a stock that has appreciated in value.


    2. The tax savings on donations up to $200 is approximately 22%. On cumulative donations over $200, the tax savings is approximately 46%.


    3. Donations must be made before December 31 to be allowed in 2001.


    4. It is better to donate a stock that has appreciated in value than to sell the stock and donate cash.


    5. When one donates a stock that has appreciated in value to a charitable organization, the taxpayer pays tax on 25% of the gain rather than 50%, but receives the credit on the full value.

    MEDICAL

    1. Medical payments must be paid before December 31 to be claimed in the current year.


    2. If you require glasses, contact lens, dental work, it might be to your advantage to pay for these items before December 31.


    3. In claiming medical expenses on one's personal return, the claim does not have to be for the 12 months ending December 31. The claim may be made for any 12-month period ending in the current year.

    BONUSES/SALARY

    1. If a taxpayer wishes to claim a deduction for a bonus to a family member for 2001, it is recommended (generally) to have proof of payment such as a cancelled cheque dated during 2001.


    2. Canada Customs and Revenue Agency may not accept a deduction without documentation of payment.


    3. Reasonable salaries or bonuses may be deductible, based on individual circumstances.

    EARLY CANADA PENSION PLAN (CPP)

    1. For anyone approaching or having reached the age of 60, they may consider applying for early CPP.


    2. This may be advisable if their income is very low for a time period before the application.


    3. If both spouses are eligible to receive CPP benefits, they may apply to have the benefits split equally.

    OLD AGE SECURITY CLAWBACK (OAS)

    1. If a taxpayer receives OAS and their net income is over approximately $53,000, they will be subject to the clawback.


    2. The clawback is 15% for each dollar of net income over approximately $53,000, up to approximately $86,000, when the OAS is fully clawed back.


    3. Any amount clawed back shows as a reduction of taxable income in the year.


    4. In the following year, the amount withheld by the Government is shown as income but it also shown as income tax withheld.


    5. For a person with net income over $86,000, they would show the OAS and it would also show as a deduction. In the tax calculation part of the return, the amount would show as a payment due offset by the tax withheld. The net result is that the taxpayer does not receive the OAS and does not pay tax on it.

    REGISTERED RETIREMENT SAVINGS PLAN (RRSP)

    1. A payment to a RRSP for someone between 65 and 69 might help reduce the OAS clawback.


    2. Spousal contributions are allowed up to and including the year the younger spouse turns 69 (ie - a 71-year old may make a spousal contribution if the other spouse is 66).


    3. Spousal RRSP's are often an excellent tax-planning device for future income splitting.


    4. On the death of a taxpayer who has a RRSP or RIF, the full amount in the plan is taxable unless it is transferred to a spouse. There are also deferrals for dependent children and grandchildren.

    We welcome comments you may have on this newsletter as well as suggestions for future topics.

    The information herein is provided for your general information and action should not be taken on the basis of this newsletter, but only on the advice of your own individual advisor, applying this advice to your individual situation. Please call if you have any questions.

    Waters & Meredith
    Chartered Accountants
    Telephone: 905-356-4324
    Fax: 905-356-0964
    E-mail: wm@watersmeredith.com

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