The Motley Fool

Top Year-End Tax Tips for Canadian Investors

It has been a tough year for some investors and a great one for others. Regardless of your situation, there are a few tax tips that should be considered in the next few weeks.

1. Tax-loss selling

Investors have until the end of trading on December 24 to sell underperforming stocks and use the losses to help offset any capital gains on winners that were sold during the year.

The reason behind the strategy is to minimize taxes payable on your winning investments and then re-purchase the losing investment, if you are still a believer in the name, at a later date.

The rules are very strict on this process, so you have to make sure you do things right. The divested stock can’t be repurchased for at least 30 days in order for the loss to be applicable.

This poses a problem for investors who are concerned that the dog they are selling could rally during the 30-day waiting period. One way to hedge that issue is to buy an ETF that holds a basket of similar stocks.

For example, an investor could sell Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG) to lock in the losses and buy the iShares S&P TSX Capped Energy Index Fund (TSX:XEG) on the same day. That way, any rally in oil would be captured through the ETF, and you can still use the Crescent Point losses to offset other gains in 2015.

Another option is to gift the Crescent Point shares to your kids. This would also trigger the loss, but the shares would remain in the family. If the stock rebounds, your kids will benefit from the gains.

2. Donate investments to charity

Sometimes investors are sitting on significant gains in an investment and don’t want to trigger a massive tax hit by selling the stock.

One way to solve the problem is to donate the shares to charity and receive a tax receipt that can be used to reduce your taxes payable for 2015. This way you can eliminate the taxes you have to pay on the capital gains and get a tax receipt for the fair-market value of the investment.

This can be an attractive option for investors who are in a high tax bracket and have accrued large gains on a small initial investment.

You might think this process is complicated, but it is actually quite simple. Many charities can receive donations online, so the tax receipt is provided immediately.

Investors can gift publicly traded shares as well as mutual funds. Both the provincial and federal governments give tax credits for donations and the combined tax benefit could be as high as 50% of the value of the investment.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stocks mentioned.

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