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Pattie Lovett-Reid

Chief Financial Commentator, CTV


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As the year draws to a close, most of us will be happy to see 2020 in the rear-view mirror. It has been a challenging year for many; however, we do not have to make a year that was tough financially worse. 

Here are three smart money moves to consider before the year ends:

1. Avoid December mutual fund purchases: Buying a mutual fund or exchange-traded fund in December in a non-registered account can result in paying tax without ever having benefited from any of the gains. It has everything to do with the taxable year capital gains distribution. Here is an example: You buy one unit of a mutual fund for $10 (this is also known as the NAV or Net Asset Value) and throughout the year, the fund has been buying and selling stocks and the result is a net capital gain of $5. When that $5 is distributed to shareholders and the NAV of your fund drops to $5, you might think: that is okay, I still come out even. But you don't. If you hold this mutual fund in a non-registered account, the capital gains distribution will be included in your income and you then have to pay tax on it. Call to action: wait to invest until January.

2. Year-end payment deductions: Just this weekend, we booked an eye appointment, made a charitable donation and explored outstanding medical appointments required before year-end. Medical expenses and charitable donations are just two of the ways to reduce your taxable income. As well, there are tax deductions for fees as they pertain to your finances and investments such as interest expenses on money borrowed to earn interest, dividend, or royalty income. And don't forget investment counselling fees. This can all add up to reduce your 2020 tax bill. Call to action: Payments need to be made before Dec. 31.

3. Registered plans: When it comes to making a contribution to an RRSP, TFSA, or RESP, do so before the end of the year. The sooner you contribute, tax-advantage compounding growth can happen. However, if you are looking to take money out of an RRSP/RRIF by putting it off until January 2021, you push out the tax hit a year. Call to action: be strategic. Contribute in December and withdraw in January.

Opportunities present themselves regularly such as the federal government's recent announcement proposing to allow Canadians working from home this year due to COVID-19 to claim expenses of up to $400. We owe it to ourselves to keep current on the latest tax strategies that can affect our bottom line.