Give and take

Enough with inflation, taxes, the climate and running your F150 on beets. Let’s talk taxes.

Parliament resumes in a few days with a Throne Speech, then we get a killer budget. Don’t kid yourself. The current government is all about two things: (a) spending and (b) taxes. So what can we do to mitigate being Hoovered by Chrystia?

Here are some actions to get busy with…

$$$ Stuff your TFSA, of course. The current limit is $75,500, and you get six grand more in January. But don’t stop there. Fill the tax-free account of your spouse, and also of your adult children.

This is a great way to do some family income-splitting. The highest income-earner can contribute to family members’ plans with no attribution back to him/her and all income earned is tax-free. Just make sure the kids understand you want it all back

$$$ Speaking of TFSAs, if you need cash to buy a golden retriever for Christmas or want to rebalance your portfolio by moving around securities in kind, do so before the end of the year. Not in 2022. This means every dollar you take out now can be replaced next year, plus the new contribution room. If you’re rebalancing things, never move an asset that’s lost money into your TFSA, since the loss cannot be claimed.

By the way, if you’ve over-contributed to your tax-free account, get the excess out now. Every month you carry an extra amount in there the penalties will accrue.

$$$ Give a big fat loan to your squeeze for investment purposes, if he/she earns less than you. The rules allow this without any of the investment gains being attributed back to you, if the loan carries interest at the prescribed CRA rate. Here’s the good part – that rate is 1%. Even better, that rate can be locked in indefinitely for the life of the loan. It’s easy to see that a year from now this deal will no longer exist. Oh, and you can loan to the kids, too.  And the cheap loan rate also applies to a family trust.

$$$ Speaking of kids, ensure you have an RESP open. The feds will give you free money for every contribution you make, and each 12 months you can go back one year and catch up on any grants missed. This is the easiest 20% you’ll ever make, and in some provinces there are extra goodies to collect. Recall that all money in an RESP grows tax free and can be removed usually with no liability. Also if your child picks social media instead of uni, much of the gain can be flipped into an RRSP.

$$$ Work for a company that gives stock options? Well, Chrystia already whacked them a bit, limiting the deduction for large company stock options granted from last July forward. Plus there is a $200,000 annual vesting limit. Odds are this is just the start, and ultimately these options will be fully taxed. Exercise options this year, if you can. The top tax bracket is heading higher.

$$$ WFH? Talk to your boss about deducting home office expenses, and not just the flimsy little bit everyone got last year. Ask for a Form T2200 allowing you to deduct many more legitimate expenses, and form part of your employment agreement. The CRA needs it to verify that your employer expected and required you to pay a bunch of personal work-related costs. If you can’t get a 2200 claim the $400 deduction everyone will once again be offered.

$$$ Okay, so it’s definitely important to buy the new Porsche or S-class by the end of the year in order to avoid the coming luxury tax. High-end rides and personal aircraft priced at over a hundred grand, plus boats worth $250,000 or more will be clobbered. The tax is the lesser of 10% of the value, or 20% of the amount above the threshold. Plus HST.

$$$ And, as we’ve mentioned a few times, expect the capital gains inclusion rate to be raised, and a new uber-tax bracket to be imposed on evil people making over $400,000 (or so). As a result – and if you believe such things will happen (most accountants seem to) – crystallizing some capital gains this year would make sense, if you were planning to cash in anyway. And for you high-income folks you can (a) work less, (b) retire and live on less-taxed investment income, (c) move to North Dakota, (d) suck it up and support the glorious T2 agenda, or (e) arrange to take income in other forms. Like anger management therapy.

About the picture: “It’s taken seven months for me to be able to share this photo,” writes Cameron. “We lost Weezie a week shy of her 10th birthday. If you know boxers, you know you can read them like a book if you pay close enough attention, and they can read you even easier.  You are welcome to use this photo in the daily blog, because I believe that 10 years also represents the amount of time since we have taken advantage of the B&D portfolio, and no longer worry about funding our retirement, thanks to you.”