Erwin and I went on a cruise. Just the TWO of us. Woo-hooh!
We are so lucky that my mother-in-law agreed to help take care of the kids.
For the first time since I have become a mom, Erwin and I travelled together without our children.
I left with tears in my eyes hugging Robin tight. Bruce was already napping at the time. 🙁
I discovered that we have a lot of time to spend, think, play, exercise and work without them!
And even get a haircut!!!
It’s so embarrassing, I had not had a haircut in just over two years. For those of you who know me in person, my hair’s long. Whether I cut it or not, it doesn’t really matter. At least that’s how I justify not having a hair cut for such a long time.
The day when we boarded our ship, I managed to finish my blog post, got a haircut and finished listening to Trevor Noah’s newest book “Born a Crime”.
(For those of you who don’t know Trevor Noah, he’s the guy who took over the Daily Show on Comedy Central from Jon Stewart. Born a Crime is a great book. Highly recommended!)
Even when we docked at Bahama the next day for half a day, we managed to tour around the famous Atlantas Hotel on Paradise Island, finished reading some more goal setting materials, and went to the gym. We also watched Mama Mia and a skating show as well.
We know that traveling along without the kids would be easier, but little did I know that our days can be this much longer and so productive! 🙂
It’s almost the end of 2016. It’s often said that tax planning is done during the year, not after the year passed. There are five tips that I would like to share with all of you to close up the year.
- Lowering your capital gain tax by harvesting your existing tax loss
If you sell a property and make substantial gain during the year, make sure you are putting aside sufficient amount of money to pay your taxes at the end of the year. You can refer to how to estimate the tax liability in this blog post.But if you also have some cumulated losses from your existing stock portfolio that is outside of your registered plans (Such as RRSPs, TFSAs), you can consider selling these stocks to trigger the losses.
The losses incurred from selling these losing stocks can be used to offset against the capital gain you incurred from selling your properties and thus lowering your tax liability.
Note that in most cases, stock investments are considered capital investments and losses associated with them are considered capital losses.
If you are in the business of flipping, capital losses cannot be used to offset against flipping income.
You may also need to pay attention to the last settlement date of your stock transaction. Transactions happen subsequent to the last settlement date of the year will appear in 2017’s transactions rather than 2016, thus defeating the purpose of selling the stock.
Be sure to speak to your investment advisors about the settlement date of the stock.
You can also buy back these shares subsequently, but it has to be after 30 days of the sale. If you or your significant other purchases the shares fewer than 30 days after the sale, the losses you trigger are considered superficial loss and you will not be able to claim it against the capital gain.
- Contributing to RRSP
Contributing to RRSP is a great way to reduce your tax liability in the short-term.If you are at the top bracket in Ontario, you get taxed at 54% on any taxable capital gain you make during the year.
For every $10,000 that you put into your RRSP during the year, you are getting a refund back of $5,400.
Don’t forget that there’s a limit in your RRSP contribution. Make sure you check back at your 2015 Notice of Assessment and not to over contribute.
Many real estate investors do not like to contribute to RRSP as it lacks flexibility to invest the money in your plans into real estate.
There are real estate investment products out there that you can invest using your RRSP.
You have until end of March 1, 2017 to contribute to your RRSP such that it is eligible to be deducted in 2016 taxation year.
- Keep all records & paperwork organized
If you are a realtor that has not started working on getting your receipts organized, it is a good idea to start during the holiday season.Realtor business is complicated. If you have done exceptionally well during 2016, chances are, you need to pay more taxes. You will need to set aside more money to pay for your income taxes and HST as well!
It’s a good idea to get your books done over the holidays so you can have a good estimate of how much you will need to pay to CRA both personal taxes and HST.
You may also be surprised by how much you need to pay that you should also consider contributing to RRSP or using Quick method for your HST filing.
And if you still think you are paying too much taxes afterwards, consider using a corporation for your real estate practice in the future. It’s a long process but it’s worth all the money you can defer.
If you are a real estate investor that has not started to organize your books yet, Christmas is also a great time to get everything together.
When you have everything ready to go for the 2016 tax year, you can file your return earlier and get your Notice of Assessment & refund earlier. This likely will make your future mortgage application a lot easier.
- Issue interest payment to your prescribed rate loan
Prescribed rate loan is a strategy that we often use to split income with the lower income spouse. Please refer to this blog post for more information about how to setup prescribed rate loan.For those sophisticated investors that are using this strategy to split income with your spouse, you are required to make the payment to your spouse before January 31 2017.
Otherwise the prescribed rate loan arrangement would be voided and all the income can be attributed back to the higher income spouse.
Like I mentioned earlier, planning is often done during the year or sometimes before the beginning of the year. If you are interested in lowering your taxes and want to plan ahead, make sure you consult with a professional accountant ahead of the year.
Until next time, happy Canadian Real Estate Investing.
Cherry Chan, CPA, CA
Your Real Estate Accountant
