Finishing strong: your year-end financial planning guide

Credit to Author: Shalini Dharna| Date: Tue, 05 Nov 2024 01:46:23 +0000

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As 2024 wraps up, it’s a great time for Canadians to think about year-end planning. Taking a closer look at your finances now can help you improve your financial health and potentially save on taxes. This guide will cover some helpful strategies, including charitable donations, medical expenses and selling investments at a loss, along with simple tips for each.

1. Charitable donations

Donating to charity is a wonderful way to support causes you care about, plus it can offer some nice tax benefits. In Canada, you can claim a non-refundable tax credit for donations made to registered charities.

To qualify for the tax credit, your donation must go to a registered charity recognized by the Canada Revenue Agency (CRA). This broadly includes non-profit organizations, educational institutions and hospitals. It is important to note that not all donations are made to registered charities, so if the tax aspect is important, be sure to check their charity status before donating. For example, a donation to a GoFundMe page would not be made to a registered charity and, therefore, would not be tax-deductible, even though you donated. Here’s how the tax rate credits work:

• You’ll get a 15% credit on the first $200 of donations.
• For donations over $200, the credit jumps to 29% (or 33% if you’re a high-income earner).

Keep in mind that if you and your spouse or common-law partner both make donations, you can combine them on one tax return for a bigger tax credit!

Make your donations before Dec. 31 to claim them on your tax return. Don’t forget to obtain official receipts since you’ll need those to claim your credit.

2. Medical expenses

Medical expenses can significantly impact your taxes, and knowing how to claim them can lead to some valuable deductions. In Canada, you can claim a non-refundable tax credit for eligible medical expenses for yourself or your dependants.

The CRA has a list of eligible medical expenses that can be claimed, including:

• Payments to medical professionals like doctors and dentists
• Prescription medications
• Vision care, such as glasses and contact lenses
• Medical devices, like wheelchairs or hearing aids
• Travel costs for medical services (under certain conditions)

Check the CRA website for deductible expenses that you might overlook, including those not covered by your benefits. Note that criteria for medical expenses can vary by province.

To claim these expenses, your total must exceed a certain threshold, which is either:

• 3% of your net income, or
• A fixed amount ($2,635 for the 2023 tax year).

You can claim eligible medical expenses for any 12-month period ending in the tax year. Effectively clustering expenses might help you meet the threshold more easily. Keep good records and receipts, as they’re essential for your claims.

3. Selling investments at a loss

Tax-loss selling can be a smart way to manage capital gains while also reducing tax bills. If you sell an investment for less than what you paid, you can use that loss to offset gains you have in the same year, or even carry it forward to future years.

Criteria for tax-loss selling:

• Realized losses: You can only claim a loss if you’ve sold the investment; holding a declining asset does not qualify.
• Superficial loss rule: This disallows claiming a loss if you buy the same or a similar investment back within 30 days before or after the sale. This rule ensures that your losses reflect real economic outcomes rather than tax strategies.

• Offset capital gains: Use your losses to offset gains in the same year. For example, if you made $5,000 in gains from one investment and a $2,000 loss from another, you’ll only pay tax on a $3,000 gain.
• Carry forward or backward: If your losses exceed your gains, you can carry them forward to offset gains in future years or back to reduce gains from the past three years.

4. General tips for year-end planning

• Review your financial situation: Take some time to assess your income, expenses and potential tax liabilities. This can help you identify areas for improving your financial strategy.
• Consult professionals: Talking to a tax professional or financial advisor can give you a clearer understanding of your finances and enhance your year-end planning.
• Keep records: Maintain organized records of all financial documents, including receipts for donations, medical expenses and investments.

Year-end planning is crucial for individuals in Canada looking to optimize their taxes and improve financial well-being. By considering charitable donations, claiming medical expenses and using tax-loss selling wisely, you can make informed financial decisions that benefit you now and in the future. With a bit of thoughtful planning, you can set yourself up for success in the coming year!

Shalini Dharna is a CPA and Investment/Insurance Advisor at Dharna CPA Professional Corporation. 

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