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2021 Year-End Tax Planning Guide for Individuals

December 22, 2021

Tax planning should be a year-round affair. But as year-end approaches, now is a particularly good time to review your personal finances and take advantage of any tax planning opportunities that may be available to you before the December 31st deadline.

As we enter the final weeks of 2021, here are some tax tips individuals should consider.

Make charitable donations:

Both the federal and provincial governments offer donations tax credits that, in combination, can result in tax savings of up to 54% of the value of your gift in 2021, depending on your province or territory of residence.

With total cash donations up to $200 in a year, the federal donation credit is 15% of the donation amount. For total donations exceeding $200 in a year, the federal donation credit jumps to 29% (33% to the extent taxable income exceeds $216,511) of the donation amount. Provincial donation credits are also available and the total credit may be up to 54% once total annual donations exceed the $200 in a calendar year.

December 31 is the last day to make a donation and get a tax receipt for 2021. Keep in mind that many charities offer online, internet donations where an electronic tax receipt is generated and emailed to you instantly.

Gifts “in-kind”:

Gifting publicly-traded securities, including mutual funds and segregated funds, with accrued capital gains “in-kind” to a registered charity or a foundation, not only entitles you to a tax receipt for the fair market value of the security being donated, it eliminates capital gains tax too. You should plan gifts-in-kind well before year-end, to allow for sufficient time to make arrangements.

Individuals with changes to tax rates:

If you anticipate that your income tax rates will be substantially different in 2022, it may be worthwhile to shift income and expenses between 2021 and 2022, where feasible.

Perhaps you may have just started, or returned to, work in 2021 so your income (and taxes) may be lower in 2021 than in the future. If so, you may wish to realize income in 2021 by taking steps such as selling investments with a capital gain, exercising stock options or taking bonuses in 2021 rather than 2022, where feasible. It may also make sense to defer deductible expenses until 2022 where possible.

On the other hand, you may anticipate that your tax rate could decrease in 2022, perhaps if you plan to retire or if you had a one-time sale of an appreciated investment. If you expect your tax rate to be lower in 2022, you may wish to defer income by taking steps such as waiting to sell investments with a capital gain, exercising stock options, taking bonuses or distributing dividends to owner-managers from a corporation, where feasible, in 2022 rather than 2021.

You may also wish to know about potential changes to tax laws that could affect you. Some tax measures were proposed during the election that, if implemented, may increase your future taxes. For example, the Liberals’ pre-election proposal to tax residential properties held for less than one year could result in tax payable on a principal residence if you sell your home within the first year. A 15% minimum tax may also apply if you have income in the top tax bracket. It is also possible the NDP might persuade the minority Liberal government to implement some of the NDP election promises, such as increasing the top marginal tax rate by 2% to 35% (from 33%) or increasing the inclusion rate for capital gains from the current 50% rate to perhaps 75%.

You may consider recognizing these types of income now, where practicable, before any new measures that could increase your taxes may come into effect.

Some new tax credits were also proposed in the Liberal election platform that may lower your future taxes if implemented. For example, the Liberals have proposed a 15% Multigenerational Home Renovation tax credit on up to $50,000 in renovation and construction costs if you add a secondary unit to your home so a family member can live with you. You may consider delaying such expenditures in the hope that this credit is formally introduced.

If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.

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