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Jamie Golombek: Here's what to do now to reap significant tax savings when you file your 2018 tax return next spring

With just days to go before Dec. 31, here’s some last-minute tax-planning ideas to contemplate during the final week of the year that could reap significant tax savings when you file your 2018 tax return next spring.

Tax-loss selling

With the recent tumult in financial markets, you may actually have some accrued losses sitting in your non-registered portfolio this year. If so, consider some last-minute tax-loss selling, which involves selling investments with accrued losses at, or close to, year end to offset capital gains realized elsewhere in your portfolio. This Thursday, Dec. 27, is the last trade date in order for your transaction to settle in 2018.

It’s critical that your trade settle in 2018 if you want to use your loss against other capital gains realized this past year, including using it to offset capital gains distributions you may have just received this past week from your non-registered mutual funds.

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One of the advantages of being self-employed is the ability to write off a variety of business expenses against your income. In some cases, those expenses may even lead to a loss that may be used against other income of the current year or carried back up to three years. That loss can also be carried forward for use against future income for up to 20 years.

But are the expenses from a business you no longer operate and from which you have no expectation of future profits still tax deductible?

That issue came before the Tax Court in a recent case involving a retired Nova Scotia lawyer who deducted professional dues of $57 and file storage fees of $1,200 as expenses on her 2015 tax return. The Canada Revenue Agency allowed her annual dues, but it disallowed her storage fees.

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Earlier this year, the government passed new tax legislation governing Canadian-controlled private corporations (CCPCs), including incorporated professionals. As we enter the final weeks of 2018, one new measure is of particular concern — the potential looming loss of the small business deduction (SBD) in 2019 for corporations with more than $50,000 of passive investment income in 2018.

The SBD provides a low rate of corporate tax on the first $500,000 (known as the “SDB limit”) of active business income annually. Business owners and incorporated professionals who don’t need to pay out corporate earnings to fund their personal lifestyles are able to enjoy a significant tax deferral of up to 41 per cent by simply leaving funds in their CCPC and investing them.

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It seems like nearly everyone you talk to these days is a landlord or is thinking of becoming one. While some of us may simply rent out our basement to bring in extra income to help cover the mortgage, others are forgoing more traditional retirement savings vehicles such as RRSPs and TFSAs for the allure of investing in residential real estate. After all, why not collect some rental income to help offset some of the expenses with a view to disposing of the real estate in a future year, hopefully at a significant profit?

Some people even boast of the tax benefits associated with being a landlord, as they seek to use any rental losses generated from their rental properties to reduce taxes owing on other income, such as employment or business income.

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If you recently received a letter in a plain, brown envelope from the Canada Revenue Agency, chances are it was because your 2017 personal income tax return is being reviewed to “make sure the benefits or credits you’re receiving are correct.”

If you received such a letter, the CRA’s advice, issued in a press release this week, is: “Don’t panic. You’re not alone.”

Each year, the CRA sends out approximately 350,000 letters and questionnaires asking taxpayers to provide additional information to ensure that taxpayers are properly entitled to the various benefits, deductions and credits which they claimed on their returns.

They may ask for documents to confirm that the information in the CRA’s records is correct and up to date. For example, the CRA may ask you to validate your marital status, where you live, and who cares for your children. This information can change as life events occur and may affect both whether you’re eligible to receive certain benefits and credits and how much you may be entitled to receive.

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