Ask an Accountant: Year end planning

Francesca Giroux, CPA
For the Lakeside Leader

As we are nearing the end of the calendar year, it is time to consider some tax planning options to engage in, in order to reduce one’s tax liability.

A capital gain arises when you dispose of a capital property (i.e. shares, property bought for investment purposes or to earn income) and the proceeds of disposition are greater than the property’s adjusted cost base (i.e. original cost). The amount of the capital gain is determined by subtracting the adjusted cost base from the proceeds of disposition. For example, if you sell a share of a corporation for $1,000 and you initially paid $500 for the share, you would have a capital gain of $500. Capital gains are included in income at a rate of 50 per cent; therefore, $250 would be included in your income for the year and would be taxed at your marginal tax rate.

Since capital gains can be reduced by capital losses if you have additional shares with accumulated losses (i.e. they have lost value since initially purchased) you may wish to consider selling these shares and replacing them with stocks/property that you feel will increase in value. The sale of accumulated loss shares will incur a capital loss, which can be used to offset the capital gain and reduce your personal income tax liability. If the there is a remaining loss after deducting against current capital gains, the remaining amount can reduce capital gains in any of the three previous years or can be carried forward to any future year. It should be noted that the disposition of the accumulated loss shares must occur before December 31, 2018 to be eligible for inclusion on your 2018 tax return. When bringing in your personal tax documents to your CGA remember to include the purchase and sale documents of the capital property in order to claim the appropriate capital gains and losses on your 2018 tax return.

Now is also a good time to consider making any charitable donations you had planned on before year-end in order to be able to get a non-refundable tax credit on your 2016 personal tax return. Be sure to keep tax receipts as proof of all donations made!

Please e-mail your questions to frankie@nashgirouxllp.ca

Information provided is of a general nature. As each individual or company’s situation is unique, you may wish to consult with your CPA for information specific to your own needs.

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