November/December 1997
Vol. 3 No. 4
1997 YEAR-END TAX PLANNING
Owner/Managers
- Consider deferring the receipt of salary or dividends until
1998 since Ontario tax rates are set to decline.
- Ensure that sufficient salary is taken to maximize RRSP and
Canada Pension Plan contributions as well as child care deductions.
- Allocate amounts from your shareholder loan account to
salary or dividends prior to the end of the year.
- Bonus down income to ensure that your corporation has less
than $200,000 of active business income.
- Pay a reasonable salary to family members, such as spouse or
children, who are involved in the business.
- If your corporation supplies you with a vehicle, you are
subject to a stand-by charge benefit based on its original cost. If the vehicle is several
years old, consider purchasing it from the corporation at its current fair market value.
- If you are planning to purchase capital assets in early
1998, try to accelerate the acquisition to 1997 to have the benefit of depreciation (at
half rates) this year.
- If you have an unincorporated business and are thinking of
ceasing operations, and you are entitled to the calendar year reserve, consider delaying
the termination of your business untill 1998 to defer the reserve income inclusion to
1999.
Investment Income
- If you are planning to acquire mutual funds consider
delaying the purchase until 1998. Many mutual funds distribute income and capital gains on
December 31st. Therefore a mutual fund purchase in December 1997 will result in an
allocation to you of a full share of the mutual fund's income and capital gains for 1997
even though you will not have received the income.
- Consider selling assets with accrued capital losses before
the end of the year. These losses will be available to offset capital gains incurred in
1997 as well as in previous and subsequent years.
- Ensure that tax loss sales take place prior to December
24th, 1997, which is the last day for settlement in 1997 for Canadian exchanges.
- If you previously made a capital gains election in respect
of the $100,000 capital gains exemption that was available until 1994, remember that it
may be amended or revoked until the end of the year. Review the election to ensure that it
is still valid.
RRSP
- Although you have until the end of February 1998 to make
your RRSP contribution in respect of 1997, consider doing so as early as possible.
- If you have non-qualifying assets in a self-directed RRSP,
they should be sold before December 31st.
- If you turn 69, 70 or 71 this year, you must terminate your
RRSP. You should either purchase an annuity or transfer your RRSP assets into a Registered
Retirement Income Fund (RRIF).
- If you withdrew RRSP funds pursuant to the Home Buyers Plan
prior to 1996, you have to make a repayment in the 1997 taxation year. However a payment
made within the first 60 days of 1998 will qualify as a 1997 repayment.
- If possible, delay Home Buyers Plan withdrawals from your
RRSP until 1998. This will extend the time you have in which to make your home purchase
and will also defer the commencement of the monthly repayments by one year.
General
- Make sure deductible payments are made before the end of the
year. These include alimony and maintenance payments, charitable donations, child care
expenses, medical expenses, professional dues, investment counsel fees and political
contributions.
- Consider gifting appreciated publicly traded securities to
charities instead of cash or other property.
- Consider making a Registered Education Savings Plan (RESP)
contribution.
- Consider accelerating planned 1998 charitable donations to
1997.
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