Things To Take Care Of Before Year End

Somewhere in between the holiday shopping, decorating, baking, kid’s school pageants, and parties you should take a moment to think about any financial issues that could be taken care of before the end of December.

Related: A Monthly Financial Planning Checklist

Spousal RRSP

If you make annual contributions to a Spousal RRSP, make your deposit now.  The holding period is three calendar years after the last contribution to be taxed in the spouse’s hands.  E.g. If you make your final spousal contribution on December 31, 2010 your spouse can make a withdrawal in January, 2013 but if you leave it for just one more day to January 1, 2011 you will have to wait until January, 2014.

Capital Loss

If you are selling shares that have incurred a capital loss be aware that, for tax purposes, the disposition of the shares is the settlement date, which is three days after the trade date.  If proper care is not taken, the transaction may not be settled until the new year and therefore not any use for your 2010 tax plan.

Related: How To Calculate Capital Gains And Adjusted Cost Base (ACB)

Income Trusts

By now you should have reviewed your income trust holdings, if any, to see if they are still a fit for your investment portfolio.  Companies have until the end of the year to convert into regular corporations.  Some have already converted to dividend stocks and most REITs are exempt from the new legislation.  Notices of “special meetings” have been sent out to unit holders regarding their intentions.

Some will cut distributions, some will keep them the same and probably most will reduce their dividends by 20-30%, or more.  Don’t just look at yields though.  Depending on your objectives, your income trusts-turned corporations may still be attractive investments for the future.

Act Now

Don’t put off important financial decisions just because it’s a busy time of year.  A few minutes of reviewing and acting on your particular situation at the end of the year can make a difference in your financial and tax gains and losses.

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  1. The Passive Income Earner on December 16, 2010 at 3:00 am

    Are you familiar with the Spousal RRSP withdrawal? I did withdraw from my wife’s RRSP in early 2009 and put it right back into mine 🙂 I was buying BNS @ 25$ with that money. My wife doesn’t work, so you can see how little the taxes were and how well I profited. (I got loads or RRSP contribution room, so 5K$ wasn’t a worry.)

    It’s not something you can do every year though otherwise I could enjoy some good tax refund. I did ask an accountant and from what I was told, you cannot have any activity for 3 years in order to avoid the attribution rule come back to you if you withdraw. For example, on year 1 you make a spousal contribution, than on year 2 you make some more. You would have not skip year 3, 4, and 5 before you can withdraw it and avoid the attribution rule.

    Anyone else got experience with this process?

  2. Echo on December 16, 2010 at 9:05 am

    @The Passive Income Earner
    I don’t have any experience with this personally but there is some good information about spousal RRSP’s over at Million Dollar Journey about how spousal RRSP’s work:

    And about a spousal RRSP loophole:

    Check out the comments as well, lots of good discussion in both posts.

  3. The Passive Income Earner on December 16, 2010 at 9:52 am

    Thanks! I checked it out. These posts were before my blogging days 🙂 It’s a bit unclear but I don’t have to worry since there never was any intention to manipulate anything to my advantage.

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