It’s that time of year again. The lights are up, my mother-in-law has been baking up a storm and the parking lot at the mall was full by eight a.m. this past Saturday. In all the hustle and bustle of the holiday season it’s easy to forget that an even more significant event, as far as setting you up for a smooth financial year happens just 7 days after December 25th.
That’s right, when the clock strikes midnight on January 1 2015 you had better have made some moves with your finances or you may be stuck suffering consequences even worse than a holiday hang-over. Like staying hydrated (with water, not alcohol) at the New Year’s Eve party here are two things everyone should be doing now, to avoid pain later.
1 – Sell your losing positions.
This may seem counter intuitive to those of us who have been told to buy and hold and ride out the market cycles but hear me out on this. I’m not talking about market timing. If you are confident that your position will come back by all means hold it. And if you your position is in an RRSP then you need to consider that you already received a huge tax advantage for putting the money in there in the first place, if you take it out now you may actually increase your tax bill. But if you have non-registered assets that have lost money and you don’t see them recovering any time soon you can take a capital loss on your investments to offset some other capital gains and potentially lower your tax bill for 2014.
In order to do that the trade must be settled before the end of the year. With the way the holidays and weekends fall this year the trade date must be no later than December 24. If you decide to re-purchase the same investment at a lower price later because you think it might come back you need to wait at least 30 days or the capital loss will be denied on your tax return. CRA auditors aren’t dummies and they resent it when you try and game the system in this way.
2 – Donate to Charity
I’m always looking for ways to help my clients give away a substantial amount of assets in a tax-effective manner. Philanthropy is the most noble of callings and when it can be done in a way that benefits all parties involved so much the better. When you have accrued capital gains in your portfolio you can gift any publicly traded security, including a mutual fund, to a registered charity or foundation, receive a tax receipt for the value of the security and eliminate the tax on any gains as well.
Gifts of securities can be made right up to December 31 but check with the charity first to make sure they are prepared to accept such a donation, not all charities are set up to handle this type of gift and they may require additional time to process it.
There is a saying around our office that goes like this: There are three things you can do with your money, you can save it, spend it, or give it away. But there is a fourth option that no one likes to think about, if you don’t plan the three buckets effectively the government will deem you unfit to manage your own money and they’ll take it from you. Jesus said render unto Caesar what is Caesar’s but he didn’t say give Caesar more than he deserves.
For more information on The Meekonomics Project program of tax effective wealth building and philanthropy write to firstname.lastname@example.org