Year-end tips for the tax-wise

Consider tax-loss selling, when to buy or sell mutual funds and the timing of TFSA withdrawals.

Matthew Elder 15 December, 2014 | 6:00PM

A new year will soon be upon us, and that means time is running out to take action to reduce your 2014 income-tax bill and to organize your affairs so that 2015 begins on the right fiscal foot. This can involve decisions on investments, as well as ensuring payments are made before the end of the year in order to qualify for various related deductions, credits and exemptions on your 2014 income-tax return.

For most investors, the priority is to review your portfolio to identify any money-losing investments that you potentially could sell before year-end. Known as tax-loss selling, this enables you to use the resulting capital losses to offset any capital gains realized during 2014 or in any of the prior three years (in other words, from Jan. 1, 2011 onward). If you have no gains to offset during that time span, the losses can be carried forward indefinitely and applied against gains in a future year.

One-half of eligible capital losses may be used to reduce the amount of taxable capital gains -- which similarly are one-half the actual profit -- that you realized during the 2011-2014 period. For example, say earlier in 2014 you sold some shares for $20,000 for which you originally paid $12,000. Your taxable capital gain is $4,000 (one-half of $8,000). If you are in the 50% tax bracket, you'd owe the Canada Revenue Agency $2,000 in tax.

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Matthew Elder

Matthew Elder