It’s the end of the tax year – here’s what you need to do

Time is running out to qualify for Ottawa’s $1,350 home renovation tax credit, and you have even less time to make use of year-end tax strategies. So here a few timely reminders.

Tax tips for home renovators

You have until Feb. 1 to spend $10,000 on qualifying items or work to earn the maximum renovation credit, and more than $1,000 to get any of the 15 percent tax credit. Qualifying expenditures include repairs, alterations and preventative maintenance for a home or apartment suite you own, including the cost of labour, materials and equipment rentals.

Remember that labour costs for home repairs, as well as the cost of heating your home, will be going up next July 1 when Ontario adopts the harmonized sales tax.

But going into debt to renovate, insulate or replace a furnace – particularly credit card debt – will negate some of the value of the tax credit.

Anyone who bought his or her first home after Jan. 27, 2009, will be eligible for a $5,000 federal tax credit, which would put $750 back in your pocket, but only temporarily because you now own a house.

Tax tips for seniors

Anyone who turns 71 this year should remember to transfer money from their registered retirement savings plans to a registered retirement income fund or annuity before the end of the year. If you don’t, the RRSP will be taxed as though it was all withdrawn as income in a single year.

If you turned 55 or older this year you will now be eligible to convert locked-in money from a former employer’s pension plan to a life income fund (LIF), and start withdrawing a prescribed minimum or maximum as regular income.

It would be better to wait as long as possible before age 71 to start spending retirement savings, particularly in the wake of the investment losses of 2008 and the low rate of interest paid on investments.

But these are hard times and Ontario does permit a one-time withdrawal of 25 percent of a new LIF for whatever reason. After Jan. 1, Ontario will also permit a second withdrawal of 25 percent or an initial withdrawal of 50 per cent.

In addition, you may apply for withdrawals from locked-in accounts that have small amounts of money or if you are in financial hardship. See www.fsco.gov.on.ca for details or call the Financial Services Commission of Ontario.

Executors and heirs should be aware that losses on registered savings that occurred after the death of a person in 2009 or later, and before distribution of the estate, may be carried back and counted as a reduction in the taxable income that would have been declared on behalf of a deceased person who had no surviving spouse or dependant.

Tax tips for parents

Things that must be done before Dec. 31 to qualify for a tax refund next spring include making charitable and political donations, paying post-secondary tuition, buying monthly or annual transit passes, spending up to $500 per child for eligible sports and fitness programs and paying charges for a safety deposit box.

If you operate a business, the end of the year is a good time to purchase computers, cars and other equipment for which you may claim a capital cost allowance. The entire cost of a computer purchased after Jan. 27, 2009, and before February 2011 may be written off in the first year.

Parents and other relatives who want to see children in their family obtain a post-secondary education have until the end of the year to contribute to a registered education savings plan. You will not get a tax refund, but the child will qualify for a federal grant equal to 20 per cent of the contribution, or substantially more if the parent contributing has a low income.

To make the most of that government assistance, be careful to consider the sales and management fees that will be deducted from investments. Bonds and other safe investments are not earning much of a return these days.

Tax tips for investors

Anyone investing outside of an RRSP should be careful about buying mutual funds that may pay a taxable year-end distribution of recent investment gains.

If you have sold investments at a profit this year, and have no losses to carry forward from previous years, consider selling investments before late December that would produce an off-setting capital loss.

Be sure to wait more than 30 days before repurchasing the investment sold at a loss or it will be considered a superficial loss. There may be situations where a superficial loss might be advantageous to a couple, but seek professional tax advice first.

One thing you may be asked to consider at this time of year is any pitch for tax shelters built around some charitable activity.

You may get a tax refund before Canada Revenue gets around to checking out the scheme, but tax authorities have made clear they will eventually hunt down and disallow every one of them.

We wish to thank James Daw ([email protected]) of the Toronto Star for writing the above column November 10, 2009. It has been reprinted here verbatim.

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