1. Once you’re 71. . .
You have only until year’s end to contribute one last time to a registered retirement savings plan. Your limit will be 18 per cent of income earned from working or from rent payments (after deducting expenses), plus any unused room from previous years. You may also over contribute $2,000 without penalty (or tax refund).
Whether you contribute or not, you must convert your RRSP(s) to one or more registered retirement income funds (RRIFs) or annuities. Missing the deadline will cost you tax on the entire sum. That might make sense if your income is low and you have little savings, but get some advice first.
2. Once you’re 65. . .
You may convert an RRSP to a RRIF or life or fixed-term annuity to become eligible to split ‘pension’ income with a spouse who would pay less tax or would see less of a reduction in government pension income. Even if you withdrew a small amount this year you to claim a federal pension income amount tax credit on the first $2,000 of eligible income, plus a provincial credited on a lesser sum.
You will be eligible to make tax-refundable contributions to a registered retirement savings plan the year after you start to work, provided you file a tax return. Then, if you set up a weekly or monthly contribution plan, you may apply to Revenue Canada before the end of year to notify your employer to deduct less tax from pay cheques the next year. Write a letter to the Taxpayer Services Division or file form T1213.
4. Once you’re a parent. . .
You and others may qualify your child for government grants (and bonds for low-income parents) to help pay for post-secondary education by opening a registered education savings plan. To qualify for any financial help, you must open an account before the child turns 15. Contribute before the end of this year to get the grant money sooner. The same holds true to a Registered Disability Savings Plan.
5. Before buying a house. . .
Be aware that, if you or a spouse intend to borrow $25,000 from RRSPs under the Home Buyers’ Plan(HBP), you will have more time before you must begin making the first of 15 annual repayments if you time your withdrawal earlier in the year. Do make those payments to postpone taxes and avoid a loss of RRSP contribution room. But make fresh RRSP contributions to enjoy tax refunds rather than paying more than the minimum HBP loan payment.
6. If you drive or pluck. . .
If you must buy a vehicle or musical instrument for your job, buy near the end of a year to claim a year’s depreciation for a few weeks of use. If you are supplied a vehicle, be sure to reimburse your employer for personal operating expenses before Feb. 14, and consider reducing personal driving the last few weeks of 2011 if that would reduce your personal use to less than half of total mileage and reduce your taxable benefit.
7. If you own a business. . .
It’s best when buying a new vehicle, office furniture or electronic equipment for your business to buy near the year end to claim a full year of depreciation (capital cost allowance) for a few week’s of use. The cost of computer equipment and software may be written off entirely in 2011 if purchased before year-end, or in 2012 if purchased before February. Pay your spouse and children reasonable (and thus tax deductible) salaries before year-end if they worked for the business.
8. If you had investment gains. . .
You may offset investment gains enjoyed outside of a registered savings or income plan during 2011 with any unused investment losses reported during the previous three years. To use losses from this year, sell any losing investments before Dec. 23 to ensure the trade will be settled before 2012.
9. If you buy mutual funds. . .
Avoid mutual funds when purchasing outside of a registered savings plan if it’s near the end of the year. You may receive a taxable distribution of any dividend and interest income, or capital gains on the sale of securities, that the fund recorded during the entire year.
10. If you’re feeling generous. . .
Make your donations to registered charities before Dec. 31 to claim a credit on your 2011 tax return. The credit on amounts of more than $200 is supersized. You will also avoid taxes on capital gains if you donate publicly traded securities, such as corporate shares, that have risen in market value since you bought them.