Claiming a loss? Tax ruling offers important lesson

Image-Claiming a loss

I’ve often told my kids: If you want to have a million dollars one day, start with $10-million then invest in a hot tip. More than a few Canadians have lost thousands this way. We can learn a lot from those who have made mistakes before us. The story of Allan Prochuk, an engineer-turned-investor from British Columbia, is a good reminder of what can happen when a hot tip turns bad. His story also sheds some light on a tax issue that many Canadians should be aware of.

The story

Until 1985, Allan Prochuk worked for B.C. Hydro when he was laid off due to the postponing of a major development project. He was given severance pay at that time that was paid into his registered retirement savings plan (RRSP). Mr. Prochuk always had an interest in the financial field, and so began working in the financial services industry after leaving B.C. Hydro. After working for a few years in the financial world he decided to leave to focus on investing his own RRSP money because he was having some success at it. According to Mr. Prochuk, he actively traded in his RRSP and managed to increase the value of his RRSP eightfold between 1987 and 1999.

It was in 2003 that Mr. Prochuk met a couple of gentlemen who introduced him to some tax reduction strategies (which were very aggressive and led to reassessments by CRA – but I digress). These same men advised Mr. Prochuk, in 2005, to invest money in a foreign currency fund with an organization called Sabourin and Sun Group of Companies (SSGC). He withdrew $250,000 from his RRSP and invested it with SSGC, which, as it turns out, was a fraudulent investment scheme. It was Feb. 10, 2011, when Mr. Prochuk received a letter from the anti-racket division of the Ontario Provincial Police informing him that one of the SSGC principals was under investigation regarding his investment practices. Mr. Prochuk only recovered some of his money. He lost $186,250.

The tax issue

So, what’s the tax issue here? Surely Mr. Prochuk should have been entitled to claim a loss for his misfortune. Yes, he was entitled to claim a loss. But there are different types of losses. Mr. Prochuk had to decide whether to claim a capital loss, or a business loss (called a non-capital loss). You see, capital losses can be applied to reduce capital gains – but not other types of income. Business losses offer greater flexibility because they can be applied against capital gains or any other type of income. Mr. Prochuk tried to argue that his losses were business losses, not capital losses.

Over time, the courts have established principles that the Canada Revenue Agency (CRA) is obligated to consider when looking at your investment transactions and determining whether your losses should be capital losses (on “capital account”) or business losses (on “income account”). The factors to be considered are: (1) the number of transactions; (2) the intention of the purchaser when buying the securities (did you intend to buy and hold them to earn income, or simply flip them for a profit?); (3) the length of time that the securities are held; (4) the quality of the securities; (5) the time devoted to stock market transactions (is this your full-time job or a hobby?); (6) the extent of borrowing; and (7) the taxpayer’s expertise or special knowledge in the securities market.

In the case of Mr. Prochuk, he argued that he was in the business of trading in securities because he did this full time to earn a living for himself. He also argued that he was carrying on an “adventure in the nature of trade” (essentially, carrying on a business). He pointed to the management of his RRSP (many of the factors listed above would point to business loss treatment if you look at how he manages his own RRSP) as evidence that this particular SSGC investment outside of his RRSP should be given business loss treatment.

He lost his case. Notwithstanding how Mr. Prochuk managed his RRSP, the court concluded that he acquired the SSGC investment for the long term and was a passive investor. So, he was provided capital loss treatment, not business loss treatment. A key moral of the story is this: When considering capital versus income treatment for a particular investment transaction, the treatment can be different from one investment account to the next – even if owned by the same investor. It makes sense, then, to segregate any day trading activity (sometimes considered on income account) into a separate account from your buy-and-hold securities.

Article:  Globe & Mail

Claim the pension credit and avoid retirement brawls



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Have you been thinking about how you’ll spend your days in retirement? There’s lots to do in those golden years. Just be careful where you hang out. I recall the story a few years back of a 62-year-old man who was kicked out of the Spring Haven Retirement Community (in Winter Haven, Fla.) because he punched an 86-year-old resident and bit another in a fight at the community salad bar.

It turns out the offender had the tendency to forage through the lettuce, looking for his favourite type, which frustrated the other tenants. The man didn’t take kindly to their comments, and he gave them what-for. The 80-year-old mother of the offender, who also lived at the home and was slightly injured trying to help her son in the incident, conceded that “it did look as though he was playing with the food.”

I think it’s safer just avoiding bars of all types in retirement – salad or not. You’d be better served spending time reading quietly at home, learning about how to beat the taxman. And you might as well start with the pension credit. So, let’s talk about it today.


While the pension income amount isn’t going to make you wealthy, these are dollars that are better in your pocket than the taxman’s. You can claim a federal non-refundable tax credit on up to $2,000 of eligible pension income. The actual tax savings federally amount to 15 per cent on up to $2,000 of this pension income, or $300. Provincial tax savings are on top, which can bring the total savings between about $350 and $700 depending on your province of residence.

There’s good news if you’re married and receive eligible pension income. You’re able to transfer up to 50 per cent of your pension income to your spouse’s tax return to be taxed in his or her hands. This pension income splitting is so valuable because it can provide both you and your spouse with access to the pension income tax credit where you might not have both been eligible otherwise.


A recent Tax Court of Canada decision, Taylor v. The Queen (2014 TCC 102), highlights the importance of understanding what type of income qualifies for this credit. In this case, Mrs. Taylor was denied the pension credit for her registered retirement savings plan (RRSP) withdrawals. Mrs. Taylor’s husband passed away in 2008 at which time she began making regular withdrawals from her RRSP. Her RRSP gave her complete discretion with respect to the timing of her withdrawals. She argued that she qualified for the pension credit once she turned age 65.

Her appeal was dismissed. The court was sympathetic but explained that the payments had to be annuity payments, which are ordinarily defined to be payments that are made on a periodic basis. Since Mrs. Taylor had discretion as to the timing of her RRSP withdrawals, these were not considered to be annuity payments. Since the purpose of the pension credit is to provide tax relief to pensioners, she argued for a generous interpretation of an “annuity.” She lost the case.


This raises the question: What type of income will qualify for the pension credit? Your age will help to determine this. If you’re 65 or over, there’s a longer list of qualifying income types than for those under 65.

Specifically, if you’re 65 or over you can claim the credit if you received any of the following types of income: Life annuity payments from a superannuation or pension plan – including income from life income funds (LIFs), and locked-in retirement income funds (LRIFs), registered retirement income fund (RRIF) payments, annuity payments from an insured RRSP or from a deferred profit sharing plan (DPSP), payments from a pooled registered pension plan (PRPP), regular annuities and income averaging annuity contracts, annuity payments from the Saskatchewan Pension Plan (SPP), and certain foreign pension payments.

If you’re under 65, you can claim the credit if you have one of the following types of income: Annuity payments from a superannuation or pension plan, payments from a RRIF or annuity payments from an RRSP or DPSP which have been received as a result of the death of a spouse or common-law partner, and annuity payments from the SPP.

Income that won’t qualify includes: Old Age Security benefits, Canada and Quebec Pension Plan benefits, death benefits, retirement compensation arrangement payments, benefits from salary deferral arrangements, and non-annuity RRSP withdrawals.

Here’s an idea for you: Consider using some of your RRSP assets to create a RRIF to draw out $2,000 annually to take advantage of the pension credit.

Article:  The Globe & Mail

New Year’s resolutions should include financial health

Image-New Years Resolution

I’ve heard it said that the New Year is an opportunity for a new start on old habits. It’s not the case for me this year. My resolution is to make progress in getting back into shape. Last year, my resolution was to drive by the new gym that opened in my neighbourhood at least three times each week. I kept that resolution, although I didn’t actually look at the gym when driving by. This year, my resolution is to actually stop at the gym.

If you’re short on ideas for your own New Year’s resolution, make a commitment to improving your life financially. Not sure how to do that? Here are what I consider to be the top five opportunities for anyone looking to get their financial house in order.

1. Create a pension.

Not everyone has the luxury of participating in a pension plan at work. And even those who do are less likely today than ever to have a defined-benefit pension plan. The bottom line? Having enough money to retire is less of a certainty today than ever. You’ve got to take responsibility for answering the question, “How much will I need to retire and how am I going to accumulate it?” Treat this like a project, and if you need help, consider contacting a trusted financial adviser. Understand that creating a pension may have to start with creating a budget if you’re spending more than you’re earning each year. Think about your registered retirement savings plan (RRSP) and tax-free savings account (TFSA) as the vehicles to use to get started.

2. Own a home.

Past surveys by Statistics Canada have shown that those who do not own their homes were much more likely to claim to have inadequate resources to retire. You might think that it’s because these folks don’t have adequate resources that they don’t own a home. Experience has shown, however, that home ownership is an excellent forced savings program. With every mortgage payment you make, you can build equity in your home. That equity only increases further if you own the property for the long term and it increases in value. Renting may be necessary or appropriate in the short term, but home ownership should be a long-term goal for most.

3. Pay down debt.

A recent Canadian Financial Capability Survey showed that two-thirds of Canadian households had outstanding debt that averaged $114,000. It’s important to realize that every dollar of debt you pay down does create a return equal to the after-tax interest cost you’ve been paying. For example, if you have a non-deductible loan at, say, 5 per cent, then paying down that debt will effectively achieve a 5-per-cent after-tax rate of return. And that return is guaranteed. Where else can you achieve guaranteed rates of return like this? Pay down your “bad” debt first. This is debt with a high rate of interest, where you’ve borrowed for personal consumption, and the interest is not deductible. Credit cards come to mind here.

4. Start a business.

I’m not suggesting that you should give up your day job to become self-employed. Creating a successful business that will fully provide for your costs of living is a tough thing to do. But even a part-time business can create the opportunity for extra income that could be very tax-efficient. How so? You’ll be entitled to claim a deduction for any reasonable costs incurred for the purpose of earning income, including things you’re paying for anyway, such as car expenses, and home costs such as a portion of utilities, maintenance, insurance, property taxes and mortgage interest. Starting a business will also allow you to split income with family members by paying them salaries or wages to work in your business.

5. Stay married.

Okay, I realize that this can be tough if there has been a break-down in your marriage. Talk to anyone who has been through a separation or divorce, though, and it won’t come as a surprise that Statistics Canada shows that these folks are far more likely to feel inadequately prepared financially for retirement and do in fact have significantly greater financial struggles. While it may not be easy work to stay together, give thought to what you might do to help create a marriage that works for the long term. There are all kinds of potential benefits, and the financial benefits are just one.

What will be your New Year’s resolution this year? Getting in financial shape may be the best priority for 2015

Article:  Globe & Mail





A big part of financial freedom? The freedom to give generously


Every year, the taxman releases statistics about the tax returns filed by Canadians. The most recent stats were released by the Canada Revenue Agency in 2013 (for the 2011 tax year), and provide a glimpse into what we’re like as taxpayers. In particular, I wanted to look at those statistics to see how generous we are as Canadians – well, insofar as our tax returns can reveal that type of thing.

Where we stand

It’s interesting to note that, of the 26.3 million tax returns filed in 2011, 22.4 per cent claimed donations of some amount. The average income reported was $42,607, and the average donation claimed was $1,607 – or 3.8 per cent of income.

It gets a little more telling when you break it down by level of income, as shown in the accompanying table. Looking at those earning between zero and $30,000, 7.1 per cent claimed donations, and the average amount of the donations claimed was $752, or 5.5 per cent of the average income in that bracket. Compare this to those earning between $60,000 and $100,000, where 43.6 per cent of taxpayers claimed donations, and they donated on average $1,411, or 1.9 per cent of the average income in that bracket. Finally, consider those earning between $100,000 and $150,000: 54.4 per cent claimed donations, and gave on average $1,813, or 1.5 per cent of the average income.

Normally, you would expect that those who are earning much more than others would have an ability to part with a greater percentage of their income when giving back. Our tax system certainly works that way: The higher your income, the higher the percentage of your income you’ll pay in tax. But when it comes to charitable giving, it’s the lower income taxpayers who make the greatest sacrifices because, although they give away less in absolute dollars, they are giving away much more as a percentage of income.

What’s concerning about the statistics is that a full 56 per cent of those earning over $60,000 and 35 per cent of those earning over $150,000 claimed zero donations on their tax returns.

Parrot on the perch

As I contemplate my own level of giving, I have to confess that I may suffer from something that many Canadians suffer from: the Poverty Mentality. It’s a mindset that can cause us to give away less than we may be able to afford.

I recall a number of years ago, when Carolyn and I were on a Caribbean cruise with our kids (who were very small at the time), an experience at a café in St. Thomas. The café had no walls – just a patio and grass roof for shade. Our son, Win, spent the better part of an hour watching some parrots that were perched next to us at the café. There was no cage around the birds. But there they sat. He asked me why the parrots didn’t just fly away.

When the parrot-keeper came by, we asked him: “Why don’t the parrots fly away? Have you ever lost one?”

“No, I have never lost a parrot yet,” he replied. “I have trained them all to think that their perches are where they will be safe and secure. Once they believe this, they wrap their claws around the perch tightly, and they won’t let go. It’s almost like they have forgotten how to fly – although I know they could fly if they tried.”

I think that sometimes I’m a lot like those parrots. And many other Canadians are, too. We have been taught to cling tightly to our money, as if it represents that perch of safety and security. And just like those parrots, we’ve trapped ourselves with the beliefs and emotions that we attach to our money. Clinging to our money doesn’t actually bring freedom. We’ll never know true financial freedom until we’re willing to let go of some of what we have.

Who experiences greater financial freedom: The person who hoards his money because he’s concerned about having enough, or the person who gives generously because he recognizes that he has what he needs? And giving generously looks different for everyone. Not all can give the same amount.

According to the statistics, those earning less than $30,000 gave on average $752 in 2011. Those earning more than $150,000 gave on average $8,048, but the former gave more than double as a percentage of their income. Generosity looks different for everyone.

As we wind up 2014, consider what you can do to help others by being generous. Want some inspiration? Visit and read or watch some stories of generosity.

Capture-Cdn generosity

Article: The Globe & Mail

Leaving Canada? Minimize the departure tax when going

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Last week I introduced James and Kate – friends who will be moving to the United States in the new year. I reminded James that the U.S. can be a strange place with some crazy laws.

If you believe what you’ll find on the Internet, it’s illegal for chickens to cross the road (Quitman, Ga.), police officers are allowed to bite a dog if they think it will calm the dog down (Paulding, Ohio), it’s against the law to sing off-key (North Carolina), and you’re not allowed to eat fried chicken other than by using your hands (Gainesville, Ga.). The good news? James and Kate are moving to California – which is not on the list.

Nevertheless, James and Kate are moving. Last week, I spoke about how they should handle their registered retirement savings plans, tax-free savings accounts and registered education savings plan before leaving. Today, I want to share another idea for them to consider.

The facts

James and Kate are leaving for the U.S. because James has accepted a job offer south of the border. It wasn’t an easy decision for them because Kate has a successful business here. She owns a retail store that sells jewellery and accessories. James will be heading to Texas the first week of January, while Kate is staying behind to complete the sale of her business and the sale of their home. She’s expecting to join James in the U.S. three or four months after he moves.

The fact is, leaving Canada can give rise to an ugly tax hit because Canada imposes a “departure tax” on those who give up residency. Specifically, those giving up residency are deemed to have sold, at fair market value, most assets when they leave. This can give rise to tax on capital gains when those assets have appreciated in value. So, James and Kate could pay tax when they move to the U.S. There’s a strategy that James and Kate are planning to use to reduce this tax hit.

The idea

James currently owns shares worth $400,000. His adjusted cost base (ACB) is just $220,000, so there’s an accrued capital gain on the shares of $180,000. If James fails to do any planning, he’ll trigger the $180,000 capital gain upon his departure from Canada and will face tax of about $44,500 since he’s in the highest tax bracket in Ontario.

Here’s what James plans to do: This month, prior to leaving Canada, he is going to transfer to Kate all of his shares. There will be no tax consequences when he does this because our tax law allows transfers between spouses to take place at cost, so that no capital gains are triggered. Now, when James leaves Canada, he won’t face the departure tax on the shares he owned because they will be owned by Kate at the time of his departure.

When Kate leaves Canada, she’ll face tax on the $180,000 capital gain due to the departure tax. The good news? She’s in a much lower tax bracket than James, and will pay about $21,700 in taxes at that time. They will have saved about $22,800 in taxes – more than half of what James would have paid.

Normally, the attribution rules in our tax law would kick in and require Kate’s capital gain to be attributed back to James to face tax in his hands, but not in this case since James will no longer be a resident of Canada.

The nuances

You should be aware that, normally, the taxman will consider two spouses to have given up residency in Canada at the same time when departing. If the taxman were to take this approach with James and Kate, they may not be able to transfer the departure tax bill to Kate as they did in my example above. So, James and Kate are building an argument that they are giving up residency at different times. And they have a good case because Kate has a valid reason for staying behind. She has to stay back to wrap up the sale of her business and their home.

Giving up residency in Canada is not as easy as simply leaving the country. While our tax law doesn’t define the term “resident,” there are court decisions and government publications (particularly Income Tax Folio S5-F1-C1, available at that provide guidelines as to who will be considered resident here. There are primary and secondary residential ties that the taxman will look at to determine where you are resident. It’s important to visit a tax pro to talk over a departure, and to properly plan to minimize taxes before you leave.

Article:  Globe & Mail

Forget hockey skates. Here’s five (financial) gifts for the grandkids


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This past weekend, I asked my kids what they would like for Christmas. The list included things like an iPad, hockey stick, scooter, clothes and video games. There was one item that the kids, together, decided they would ask for. A group gift, if you will. I’m talking about the Henry River Mill Village. A village. No kidding.

As it turns out, this little village located in North Carolina, consisting of 22 abandoned buildings on 72 acres of land, is for sale for $1.4-million (U.S.). The village lost its textile economic base in 1987, was abandoned, and was the filming location for many scenes of the movie The Hunger Games.

I wasn’t planning on spending that much on the kids for Christmas this year. As you contemplate the gifts you might be buying your children or grandchildren this holiday season, consider financial gifts that could reap big rewards for them in the future. Consider these five ideas.

1. Set up a registered education savings plan.

I’m not sure what a gift-wrapped RESP placed under the tree would actually look like, but an education is about the most valuable thing you can give to a child or grandchild. If you socked away $2,500 annually per child, for 18 years, and earned 6 per cent on that money, you will have accumulated $77,264 by the time the student in your life is ready for postsecondary school. You can add an additional $7,200 in Canada Education Savings Grants from the government, plus growth on those grants of $7,114 over 18 years at an assumed 6 per cent, so the RESP value after 18 years will be about $91,578. Believe it or not, that may still not be enough to pay for four years of postsecondary education if your child lives away from home, but it will go a long way to covering those costs.

2. Transfer securities to an adult child.

Why not consider giving certain securities in your portfolio to your kids. You’ll be deemed to have sold the securities at market value, so there could be tax to pay if they’ve appreciated in value. On the flip side, if they’ve declined in value, you can claim the capital loss, and if you still like the prospects of the investment your kids can hold onto the securities and benefit from their future growth.

3. Set up an in-trust account for minors.

You can invest in the name of your minor children or grandchildren by setting up an in-trust account for them. Capital gains realized in the account can be taxed in the hands of the children (so invest for growth, not for income, since income will be attributed back to you and taxed in your hands). Once the children reach age 18, they will be legally entitled to do as they wish with the money.

4. Buy insurance on the life of your child.

I recently had projections done and learned that I can invest $250 monthly in an insurance policy on the life of one of my kids. In my case, this amounted to a $500,000 policy with a growing pool of investments that would be worth an estimated $47,000 in 20 years, and no more payments would be required on the policy if I so choose. Once my child is over 18, I can transfer the policy to him with no tax implications. I may make that transfer when he’s a little older. He’ll then own a $500,000 policy on his own life with investments that he can access to help with a down payment on a home, use for some other purpose, or he can simply allow the investments to continue to grow if he chooses to contribute more to the policy on his own.

5. Establish a family foundation.

There is perhaps no better way to build a common set of values, and teach your kids about good governance, business principles and investment strategy than by creating a foundation for the family to give charitably. The simplest way to do this is to establish a donor-advised fund through a public foundation, such as a community foundation or Scotiabank’s Aqueduct Foundation, for example. The public foundation will look after all paperwork, including tax filings, and all you have to do is decide where to distribute your charitable dollars. Give each family member the ability to donate to charities of their own choosing, and perhaps choose one or two charities together for the balance of the money donated. Private foundations are another option for larger amounts set aside for charity – but that’s a topic for another day.

Article:  Globe & Mail


How a kind gesture on your part can actually lead to a tax hit


Image-Kind Gesture

As the Christmas season approaches we’ll be having a couple of parties at our home. There are certain topics that are taboo when it comes to starting conversations with guests. Talking about the state of someone’s finances, condition of their marriage, their incontinence, life expectancy or physical ailments didn’t work well for me last year. And I don’t like to talk much about the Income Tax Act either – particularly subsection 56(2). Not that most guests would mind having a conversation about it (I read parts of section 80.01 to guests last year), but that particular provision gets my blood boiling. Let me explain.

The law

What you should understand about subsection 56(2) of the Act is that it deals with what are called “indirect payments.” The subsection is meant to catch situations where you should receive and face tax on certain amounts, but you direct the payments to someone else with the intention of avoiding tax.

If 56(2) applies, it can cause an amount, that you do not receive, to be added to your income. Specifically, you’ll face tax if four conditions are met: (1) There’s a payment or transfer of property to someone other than you, (2) the payment or transfer takes place at your direction or concurrence, (3) there’s a benefit to you, or that you intend to confer on the other person, and (4) you would have been taxed on the amount if the payment or transfer had been made to you rather than the other person.

The examples

Okay, I get it. The subsection is important in certain situations. What if, for example, you’re an independent salesperson and you’re owed commissions, but you direct the payer of the commission to make payment to someone else instead – perhaps your spouse. In this case, you should pay the tax, and 56(2) will ensure that happens. Or take another example where you’re the shareholder of a corporation and you cause your company to make a gift to your Aunt Bessie (who is not a shareholder or employee).

Or perhaps you own a rental property and instruct your tenant to pay the rents to your corporation even though you own the property personally. Or maybe you direct your business to pay a salary to your spouse when she didn’t truly provide any services to the business. Subsection 56(2) can apply in all of these cases. The list of examples is endless.

The story

Earlier this year, a taxpayer wrote the Canada Revenue Agency a letter asking for the taxman’s views on a matter that involved 56(2). Here’s the story: An employee – let’s call him Mr. Donor – would like to donate some of his vacation time to a co-worker – call him Mr. Friend – who is experiencing hardship and needs the additional time off to deal with personal family matters. It’s clear that vacation time has monetary value. In this case, the employees have the option to take their vacation time (and be paid for it, of course) or take cash instead of the time off. It’s also fair that someone should pay tax on that value received from the employer.

CRA responded to the taxpayer’s letter (in document 2013-0514321E5) by suggesting that Mr. Donor would face tax on the value of the donated vacation time under 56(2). The taxman also said that it’s possible that Mr. Friend would also face tax on the value of that vacation time, although they’d likely be willing to forgo taxing Mr. Friend to avoid double-taxing the amount. Given this response, I wouldn’t blame Mr. Donor if he decided not to donate his vacation time after all.

The moral

You’ll notice that the conditions for 56(2) to apply (noted above) say nothing about the intent to avoid tax – but really should. In the story above, Mr. Donor, who was willing to donate his vacation time to his co-worker, was not trying to avoid tax. He was trying to help a friend and co-worker. In fact, avoiding tax was not even on his radar. Yet, according to CRA, 56(2) will apply to tax Mr. Donor on the value of the vacation time. I bet the co-worker who received the vacation time would be willing to pay tax on the compensation he receives when taking those vacation days. And that would be fair. Instead, CRA plans to penalize the donor. The problem is that subsection 56(2) of our tax law isn’t well-written.

So, the moral of the story? Be aware that 56(2) is out there, and be careful any time you transfer or direct payments, property, or something of value to another person, because you might just face tax.

Article:  The Globe & Mail


Seven important tax tips to consider before year-end

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What’s on your to-do list before year-end? At my house, we talked about this over dinner last weekend. My son, Win, turned 16 recently and so driving as much as possible is on his list. I’m not sure he’s really ready for the road.

I asked him a simple question: “Who has the right of way when four cars approach a four-way stop at the same time?” To which he responded: “The guy in the pickup truck with the gun rack and bumper sticker that says ‘I gave up anger management.”

My father, on the other hand, has different plans before year-end. High on his list is to review his investment portfolio. Not exciting, maybe – but it could be profitable. I shared with him seven ideas to consider before year-end. If you’re an investor, you’d be wise to consider these, too.

1. Time the sale of your winners.

It’s almost always better to pay tax later, rather than sooner. If you’re thinking of taking some profits on the winners in your portfolio, consider waiting until January to sell. This will push the payment of your tax bill on the sale to the spring of 2016.

On the other hand, if you have unused or accrued capital losses, consider selling your winners today and offset your capital gains with your allowable capital losses. You can reinvest the proceeds and your new investment will have a higher adjusted cost base (ACB) than your current winners. You get the benefit of this “step-up” in ACB without triggering tax when your capital losses offset your gains.

2. Sell your losers to save tax.

If you’ve got investments that have dropped in value, consider selling these to realize the capital losses before year-end (place trades by Dec. 24 if you want them to settle in 2014). This makes the most sense if you reported capital gains on your 2013, 2012 or 2011 tax returns. You’ll be able to carry your capital losses back up to three years to offset gains in those years and recover taxes you paid. Or perhaps you have capital gains this year that you can apply those capital losses against. Don’t jump to sell your losers if you don’t have capital gains to offset and you still like the prospects of the investment.

3. Make use of a TFSA.

If you haven’t already set up a tax-free savings account, do it before year-end. The ability to contribute starts when you turn 18, so perhaps a child of yours should open an account. The contribution limits were $5,000 per year for 2009 through 2012, and $5,500 for 2013 and 2014, for total contribution room of $31,000 over those years. The TFSA will allow you to grow investments tax-free and withdraw the funds later tax-free as well.

4. Transfer assets to a child.

Giving a child assets before year-end can reduce the value of your estate, saving income tax and probate fees upon your death. If you give them your losing investments, you’ll be able to claim the capital losses that are triggered when making the gift, which can save tax. In addition, if your child is an adult, she could sell the assets and contribute to her TFSA or registered retirement savings plan (RRSP) to accelerate her own savings, or pay down debt.

5. Donate securities to charity.

Are you thinking of donating money this year? You’ll save more tax by donating some of the winners in your portfolio. Any accrued capital gain on a security that is donated to charity will be eliminated. Not only is the taxable capital gain set to zero, but you’ll still be entitled to a donation tax credit to boot.

6. Transfer capital losses to your spouse.

If you have unrealized capital losses but no capital gains this year or in the past three years, consider transferring those losses to your spouse if they have capital gains that can offset the losses.

7. Rebalance your portfolio for tax efficiency.

If the performance of your portfolio has caused certain asset classes to become over- or underweighted, think about rebalancing your portfolio. Don’t forget that capital gains and eligible Canadian dividends receive more favourable tax treatment than interest or foreign income. I’m not suggesting that you take on more risk than appropriate, but if you’re reinvesting proceeds, think about the tax that will be generated by your portfolio.

Article: Globe & Mail