Personal Investor: Tax tips to make your season a little brighter
‘Tis the season for tax-loss selling.
Investors can lower their 2017 tax bill by selling losing equities by year-end and applying the losses against equity gains going back three years, or saving them to apply against future equity gains. It’s a tax perk within a tax perk considering only half of capital gains are subject to taxation to begin with.
A better alternative is to not pay any tax on capital gains in the first place. Most Canadians can avoid the capital gains tax by buying and selling equities in their tax-free savings accounts. The capital gains tax does not apply to equities sold in a registered retirement savings plan either, and the proceeds can grow tax-free until they are fully taxed at the individual’s going rate when they are withdrawn (normally in retirement).
The total allowable TFSA contribution space since its inception in 2009 has grown to $52,000, and is expected to rise by another $5,500 on January 1st. The RRSP contribution limit is the lesser of $26,000 or 18 per cent of the previous year’s income, and any unused amount can be carried forward to future years.
According to the Canada Revenue Agency, only 0.5 per cent of individual taxpayers have maxed out their TFSAs and RRSPs.
So, why would the capital gains tax even be an issue for 99.5 per cent of Canadians as TFSA and RRSP contribution limits keep rising each year?
The CRA doesn’t have an answer for that but if you’re tax-loss selling this year, and you still have contribution space in your TFSA or RRSP, apply the proceeds against past capital gains and consider giving yourself an extra tax present this year by investing inside a cozy tax shelter.
Let the 0.5 per cent worry about tax-loss selling.