Help & Tips

Year-End Tax Planning Tips for Seniors

Here are some of the year-end tax planning ideas an individual senior might want to considered.

Apply for Old Age Security (OAS) Benefits:

If you turned age 65 in 2019, you may wish to apply for OAS benefits. If you’ll reach age 65 in 2020, then you can apply for OAS up to 12 months before your 65th birthday.

Also, you may voluntarily defer the start of your OAS pension benefit for up to five years (60 months) after the month you turn age 65 and receive a higher annual pension than if the benefit began at age 65. If you would otherwise be subject to a full clawback of your OAS benefits, deferring receipt of the payments may be beneficial, with little attached risk or cost. The OAS clawback applies if your net income for the year exceeds a certain annual threshold. For 2019, this threshold is $77,580. The amount of the clawback is equal to the lesser of your OAS payments or 15% of the amount by which your net income for the year exceeds the threshold amount. For 2019, the full amount of the OAS benefit is eliminated when your net income reaches $126,058.

Note that if you choose to defer receipt of your OAS pension, you will not be eligible for the Guaranteed Income Supplement (GIS), and your spouse or common-law partner (Partner) will not be eligible for the Allowance benefit (i.e., generally, a benefit available to a Partner, aged 60 to 64, of a GIS recipient) for the period that you are delaying your OAS pension.

Apply for Canada Pension Plan (CPP) Benefits

If you turned age 60 in 2019, you are eligible to apply to receive CPP benefits. However, if you apply for CPP benefits before age 65, you should know that there is a reduction in your benefit payment. In 2019, an individual who takes CPP retirement benefit at the earliest possible moment (i.e., age 60) will lose 36% (0.6% per month) of the entitlement. On the other hand, an individual who defers his/her CPP retirement benefit to the latest moment (i.e., age 70) will increase the pension entitlement. In 2019, the late pension augmentation is 0.7% per month for a total increase of 42%.

Service Canada suggests that individuals should apply for their CPP benefits six months before the time they wish to start receiving CPP benefit payments.

Contribute to Registered Retirement Savings Plan (RRSP):

If you are 71 in 2019, consider making a final contribution to your registered retirement savings plan (RRSP). If you turned age 71 in 2019, you may wish to make a final contribution to your RRSP by December 31, 2019. If you have unused RRSP contribution room remaining, making a final contribution can be beneficial, as the amount of the contribution can be deducted against income generated in 2019, thereby reducing your tax liability in 2019.

Allocate pension income to your Partner:

Since 2007, Partners have been entitled to an income splitting opportunity that allows them to allocate up to one half of their income that qualifies for the existing pension income tax credit to their Partner. In this case, you may want to review your 2019 pension income (including income from a registered retirement income fund if you are aged of 65 or older) and assess the opportunity to allocate up to 50% of your eligible pension income to your Partner. This income splitting opportunity may provide you with greater after-tax income from your retirement plans.

Year-End Tax Planning Tips for Students

Pay loan interest before year-end:

Students may be entitled to claim a tax credit for interest they paid in the year (on or before December 31st) on a qualifying student loan for post-secondary education. Either the student or a person related to the student can pay the student loan interest; however only the student is entitled to this tax credit. Unused credits from the current year can be carried forward and be used in the following five years.

Claim the Goods and Services Tax (GST) / Harmonized Sales Tax (HST) credit:

Students who have no income or low or modest income and are a resident of Canada may be able to claim the GST/HST credit. They can apply for this quarterly payment by filing their income tax and benefit return.

Claim tuition fees:

To claim your tuition fees, the Student should receive an official tax receipt from the educational institution to reflect the amount of eligible tuition fees have paid for a calendar year. Most of the Canadian educational institute issued Form T2202A, (Tuition and Enrolment Certificate) to student in support of the tuition fees paid.

Students who attend a university outside of Canada may claim a credit for tuition and education and textbook amounts on their personal Canadian income tax return. In order to support the claim, students should have their school issue and sign CRA form TL11A Tuition and Enrolment Certificate - University Outside Canada.

Students should keep this form T2202A/TL11A in the event the CRA reviews their claims.

Consider transferring a student's unclaimed amounts:

If a student is unable to utilized/fully utilize available tax credits for tuition, education amounts, any excess amounts may be i) transferred to either a Partner or a supporting parent or grandparent (including a Partner's parent or grandparent) or

ii) carried over to a future year (as discussed below).

There are different rules and limits to the amounts eligible for transfer by a student to either a Partner or a supporting parent or grandparent. The student and his/her Partner or supporting parent or grandparent should speak with a professional tax advisor regarding any applicable rules and limits, as well as for guidance on transferring a student's unused amounts.

Track a student's unclaimed credits Students are allowed to carry forward any unused tuition and education credits indefinitely, and any unused credits for student loan interest paid for five years. If a student has paid tuition or student loan interest in the past and has not been able to claim tax relief for those amounts, he/she should keep an accurate record of his/her unclaimed amounts. Once a student begins to work full-time and can use the tax relief that these credits offer, he/she will enjoy tax savings by reducing his/her tax otherwise payable.

Make moving expenses deductible:

Full-time students in post-secondary education should consider claiming moving expenses for their move to school. In order to be eligible to claim the moving expenses, students would have to earn some taxable income while at school (i.e., have a part-time job or receive a taxable scholarship, award or grant). Students should also consider claiming expenses for moving back home again in the summer (provided the student also earns income while at home in the summer). In order for the moving expenses to qualify for a tax deduction, the new home must be at least 40 kilometers closer to the new school or work location. Eligible moving expenses include those associated with travel, transportation of belongings, as well as meals and temporary lodging for up to 15 days.

Year-End Tax Planning Tips for Self-employed Individuals

While the end of 2019 is approaching, there is still some opportunity for both self-employed persons and owner managed corporate business review their financial situation. Here are some of the yearend tax planning ideas a self-employed person or corporate business owner might want to explore.

Pay salaries to family members:

Paying family members a salary or wages before December 31st for services they've provided to the business is a great income splitting opportunity. In order to support payments to family members, you should review the services family members provided in 2019 and determine the amount that are justify as reasonable compensation. While the family member would be taxed on their compensation payments, they may be in a lower marginal tax bracket than you and therefore pay little or no tax on this income. At the same time, your business should also be entitled to a deduction for tax purposes for the same amount.

Purchase capital assets

If you are considering buying assets for use in your business in year 2020, you may want to consider buying the assets and having them available for use in the business before December 31st in order for you to claim capital cost allowance (CCA) in 2019, rather than waiting until 2020 to buy those assets. Even though the half-year rule provides that only half of the CCA otherwise allowable can be claimed in the year that you buy an asset, you would have accelerated your deductible CCA by one full year to 2019 rather than waiting to deduct it for 2020.

Defer selling depreciable business assets

If you are planning to sell depreciable business assets, you may want to consider delaying your sale until 2020. By delaying your sale of assets to next year, you can reduce your income by deducting CCA in 2019. In addition, if you previously claimed CCA on these assets and the sale may give rise to recaptured CCA (i.e., treated as ordinary income in the year of sale), you can defer the tax on this ordinary income (recaptured CCA) to 2020.

Accelerate deductible expenses

If you are looking to reduce taxable income in 2019, you might want to consider making certain business expenditures before December 31st in order to claim a business deduction for these expenses in 2019.

Defer income

If you are able to put off receiving income until 2020, you may be able to defer the tax on that income for a full year. This may be accomplished if you postpone the completion of work or the issuance of final invoices.

Home Office Deductions

More and more Canadians are electing/forcing to work or operate a business from home. Many individuals who have a home office are not aware of the full extent of the tax deductions available to them.

The first consideration is whether the taxpayer is an employee and need to maintains a work space in their home for employment or is self-employed and maintains a workplace in their home for the business.

Work Space in Home (commission / salaried employee)

An individual may deduct expenses paid for the employment use of work space in home as long as one of the following conditions is met:

- The work space is where they mainly work (more than 50% of the time),

- The work space is used only to earn employment income and it is used on a regular and continuous basis to meet clients or customers, or other people in the course of the employment duties.

Form T2200, Declaration of Conditions of Employment has to be completed and signed by employer.

Business in Home (self-employed)

An individual may deduct expenses paid for the business use of work space as long as one of the following conditions is met:

- It is the principal place of business,

- The space is used only to earn business income, and it is used on a regular and continuous basis to meet clients, customers, or patients.

If the above conditions are met the taxpayer may deduct a portion of the following expenses that relates to the home office.

As only a portion of the home is used as a home office, the taxpayer needs to determine what percentage of the expenses they may deduct. This amount is determined by calculating, the area of work space divided by the total area on a reasonable basis.

Please note that the claiming capital cost allowance is often not advisable as Canada Revenue Agency will disallow the use of the principal residence exemption for that fraction of the property, when it is sold. Furthermore, the capital gain and recapture rules will also apply if the taxpayer deducts capital cost allowance on a part of the home and sells it later.

Limitations and Carry Forward

Work Space in Home (commission / salaried employee)

- Deduction is limited to the amount of employment income remaining after all other employment expenses have been deducted. This means tax payer cannot use work space expenses to create or increase a loss from employment.

- The taxpayer may only deduct work space expenses from the income to which the expenses relate, and not from other income

- If the taxpayer cannot deduct all their expenses in the year, they may be carry forward and deducted the expenses in the following year as long as they are reporting income from the same employer

Business in Home (self-employed)

- Deduction of home office expense cannot exceed the net income from the business before the deduction of these expenses. In other words tax payer cannot use this expenses to create or increase a business loss.

- The taxpayer may deduct the lesser of the following amounts:

Any amount carried forward from the previous year, plus the business use of home expenses incurred in the current year;

The amount of net income (loss) after adjustment.