While you wait for your investment portfolio to fully recover from the recent drop in the market, here are some tax planning ideas to consider. Tim Cestnick, well known for his columns in the Globe and Mail, makes these suggestions.
- Sell the losing stock and transfer to RRSP or TFSA.
Consider selling the losers and use the cash to contribute to the RRSP or TFSA. If you sell at a loss, you will not pay tax on the sale of the investments. You cannot directly transfer the investments to these registered plans, because the capital loss will be denied. You have to cash them in and use the proceeds for your contribution. - Make your non-deductible debt deductible.
Cash in the investments that have dropped in value, pay down some non-deductible debt, and then borrow to reinvest. The interest costs on your new loan will be tax deductible. - Save for your child’s education.
If you have children or grandchildren, you may want to help them with their post-secondary education by selling some of your losers and contributing the cash to a registered education savings plan (RESP). The bonus is that the government will kick in an additional 20% as the Canada Education Savings Grant(CESG) on a RESP contribution of up to $2,500 for each year. The lifetime maximum CESG is $7,200 for each child. - Make some gifts to your heirs.
With any losers in your portfolio, there may be a great opportunity to consider transferring these investments to your children or other heirs who will one day inherit the assets from you. You can transfer the investments in kind or sell them and give them in cash. You don’t pay any tax because of your losses and any future growth in the value of the investments will not be taxed in your hands. You can also claim the capital losses on the transfer of the investments. - Renovate your home.
If you are over the age of 65 or you have a disability, or you are a spouse or caregiver to such a person, you may be entitled to the Home Accessibility Tax Credit. You can claim up to $10,000 of eligible renovation costs that allow you to get better access or improve your mobility around your home. If you cash in the losing investment, you get the double benefit of claiming capital losses and receiving the tax credit.
Beware of the superficial loss rules.
When you sell an investment at a loss, be aware that the loss can be denied, if you purchase the same securities in the period that is 30 days after or 30 days before your sale. You can invest in different securities but you cannot buy back the identical stocks.
