Year-End Strategies to Help Reduce Your Taxes

Here are some common year-end strategies that could help you reduce your 2018 tax bill.

Before December 15
Do you make quarterly tax installments?
  • Make your final payment to the Canada Revenue Agency (CRA) on or before December 15th to avoid late interest charges.
  • Missed an earlier payment deadline? Consider making a larger payment before the 15th to reduce late interest charges.
Before December 27
Take advantage of tax loss strategies.
  • If you have capital gains this year (sold an investment for more than you paid for it)—and you’re holding securities with unrealized capital losses—consider selling those securities to realize the losses and offset the capital gains.
Defer capital gains.
  • Consider deferring to sell investment with unrealized capital gains to next year, if you think your tax rate will be lower in 2019.

Talk to an RBC Financial Planner to see if these strategies are right for you.

Before December 31
Take advantage of tax-smart investing.
  • Contribute to your RRSP/spousal RRSP now to reduce your 2018 taxable income while maximizing the tax-deferred growth in your plan.
  • Contribute up to $6,000 to earn tax-free investment income.
  • Plus, catch up on any unused contribution room from 2009-2018 to maximize your tax-free savings.
  • Thinking of making a TFSA withdrawal? Do so before year-end so you can recontribute the amount as early as January 1.
  • Saving for a child’s post-secondary education? Contribute to an RESP before the end of the year to make the most of tax-deferred growth and government grants.
Turning 71 in 2018 and have earned income?
  • Even if you have no carry-forward room but have earned income that will generate RRSP contribution room in 2019, consider making a final RRSP contribution before the end of 2018 which can be claimed as a deduction on your 2019 tax return.
  • Since the contribution is made before the end of 2018, an over-contribution penalty tax of one per cent per month will apply on any amount greater than $2,000.
Make a charitable donation.
  • Donate to a registered charity to claim the tax credit on your 2018 tax return.
Put your year-end bonus to work.
  • Reduce your withholding taxes by transferring your bonus directly to your RRSP (if your employer allows this and you have unused contribution room).
  • Expect to be in a lower tax bracket next year? Consider deferring your bonus to early 2019 (if allowed by your employer).
Moving to a different province or territory? Plan your timing.

Generally, you’re taxed based on where you live on December 31st. Consider:

  • Moving before year-end if you’re going to a province or territory with a lower tax rate.
  • Waiting until 2019 if you are moving to an area with a higher tax rate.
Pay tax-deductible expenses.
  • Pay all investment management fees, deductible legal and accounting fees, childcare expenses, alimony and medical expenses by December 31st to deduct them on your 2018 personal income tax return.
Before January 30
Pay interest on family loans.
  • If you set up a spousal loan or funded a family trust with a prescribed rate loan, remember to pay the interest owing by January 30, 2019. You may be able to claim a deduction for the interest paid on your tax return.
Before March 1
Take advantage of unused RRSP contribution room.
  • March 1, 2019 is your last chance to contribute to your RRSP/spousal RRSP in order to deduct the amount on your 2018 tax return.

All of these strategies may not apply to you, so it’s a good idea to speak with a qualified tax advisor and a financial planner to decide what is right for you.

Before December 31
Pay your salaries.
  • Consider paying reasonable salaries to yourself and family members who work in your business before your company’s year-end. This payment will increase RRSP contribution room for 2019 and give your business a tax deduction in 2018.
Declare your bonuses.
  • If your business is incorporated and you require income from your corporation, consider declaring a bonus before the end of your tax year and pay the amount within 180 days.
  • If the business declares a bonus on December 31st (assuming that’s your year-end), it will get a tax deduction for 2018. And if you receive the bonus in 2019, the tax you have to pay on that bonus will be deferred by a year.
Repay your shareholder loans.
  • If your business is incorporated and the corporation loaned you money, be sure to pay the loan back within one year of the end of the taxation year of the corporation in which the loan was made to avoid having to include the value of the loan on your personal tax return.
Purchase assets for your business.
  • If your business needs new computers, furniture or equipment, consider buying it before year-end so that you can claim depreciation on the asset for tax purposes.
Anytime during the year
Set up an Individual Pension Plan (IPP).
  • If your business is incorporated, you can use an IPP to save for retirement and reduce your year-end corporate tax bill.
  • An IPP is similar to many large company-sponsored plans, except it’s established and sponsored by your company and designed for you as the only member.

All of these strategies may not apply to you, so it’s a good idea to speak with a qualified tax advisor and a financial planner to decide what is right for you.

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This article may contain several strategies, not all of which will apply to your particular financial circumstances. The information in this article is not intended to provide legal, tax, or insurance advice. To ensure that your own circumstances have been properly considered and that action is taken based on the latest information available, you should obtain professional advice from a qualified tax, legal, and/or insurance advisor before acting on any of the information in this article.
Financial planning services and investment advice are provided by Royal Mutual Funds Inc. (RMFI). RMFI, RBC Global Asset Management Inc., Royal Bank of Canada, Royal Trust Corporation of Canada and The Royal Trust Company are separate corporate entities which are affiliated. RMFI is licensed as a financial services firm in the province of Quebec.