As eggnog lattes replace pumpkin spice beverages at your local café, it’s a sure sign that the holiday season — and year-end — is fast approaching.

But before retackling the perennial topic of tax-loss selling, does anybody really have any accrued losses in their portfolios in 2019? After all, this past week saw record highs for the TSX and Dow Jones indices. The TSX composite five-year total return was up over 30 per cent and the Dow Jones industrial average had posted a five-year total return of nearly 80 per cent (in U.S. dollars, but more about that later).

The answer may depend on how long you’ve been investing and what you’re holding in your portfolio. 

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With the top marginal personal tax rate exceeding 50 per cent in more than half the provinces in Canada, it’s no surprise that some taxpayers are looking at ways to income split with a spouse or common-law partner. In a province like Ontario, where the top marginal tax rate is 53.5 per cent and the bottom rate is 20 per cent, that’s a spread of over 33 per cent.

There are a variety of ways to legally split your income with a spouse. They range from straightforward strategies, like pension income splitting or CPP/QPP sharing, to more sophisticated strategies such as using a prescribed rate spousal loan to have any excess returns above the prescribed interest rate (currently holding at two per cent) taxed in the hands of the lower-income spouse.

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“There is no place for the state in the bedrooms of the nation,” quipped the elder Trudeau back in 1967, when, as justice minister, he announced reforms to the Criminal Code that, among other measures, would decriminalize homosexuality.

But that famous statement doesn’t necessarily hold true when it comes to the taxman, who may indeed have a keen interest in what goes on in your bedroom, especially if you try to write it off as a home office.

Take the recent case, decided earlier this month, involving employment expenses. The taxpayer, a former Toronto-based marketing and communications consultant who now lives in Boston, was employed by a private company of which she was the sole director. Her job was to procure clients for the company’s advertising business.

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While Canada’s tax system is generally one of self-reporting, there are a variety of checks and balances built into it to verify that taxpayers are, indeed, reporting their income properly each year. The most common method the Canada Revenue Agency has of checking up on us is to match the various types of income we report with the income that is reported on T-Slips, copies of which are electronically submitted to the agency by payors. For example, employers report employment income on a T4 slip, investment income is reported on T3 or T5 slips, the disposition of securities is reported by your broker on a T5008 slip and RRSP withdrawals are tracked on T4RSP slips.

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It may be tempting for some taxpayers to write off personal expenses as tax-deductible ones, especially under the guise of a business, but doing so could get your expenses denied by the Canada Revenue Agency and could even expose your prior years’ tax filings to reassessment beyond the “normal reassessment period.”

Indeed, this is exactly what happened in a recent Tax Court of Canada decision released last week in a case involving a taxpayer who was reassessed by the CRA in November 2018 for his 2013, 2014 and 2015 taxation years. The 2013 taxation year was reassessed after the expiry of the applicable normal reassessment period and thus would generally be considered to be “statute-barred.”

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