Golombek’s year-end tax tips

Taxpayers have a new planning opportunity to consider in 2024, given this year’s proposed capital gains tax changes.

“What’s new and unique, for the first time in 2024, is tax-gain selling,” said Jamie Golombek, managing director, tax and estate planning with CIBC Private Wealth, in a recent interview. 

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Tax-gain selling helps address the proposed change to the capital gains inclusion rate.

“As of June 25, the capital gains inclusion rate was increased to two-thirds for individuals with more than $250,000 of gains annually,” Golombek said. “So, the question we’re talking about with many of our clients is whether or not it makes sense to crystallize $250,000 of capital gains before the end of the year to take advantage of the fact that the first $250,000 of gains are taxed at the lower 50% inclusion rate.”

Crystallization of publicly traded shares is straightforward: sell the shares in the market and immediately repurchase them. 

“As opposed to tax-loss selling, where you have to wait 30 days to buy [the shares] back, there’s no equivalent superficial gain rule, and therefore you can literally buy back that stock immediately and be able to recognize that gain,” Golombek said. 

To decide whether tax-gain selling makes sense, Golombek suggested investors consider their expected rate of return and time horizon.

For example, if the tax you don’t pay for 2024 were invested to earn 6% capital gains, compounded annually, it would take about eight years of tax-deferred growth, after-tax, to beat the tax savings attributable to the lower inclusion rate.

Common scenarios when tax-gain selling may make sense include plans to sell a vacation or income property in a future year, Golombek said, as such transactions often result in significant capital gains that could push the seller into a higher tax bracket. 

“Similarly, on death, the deemed disposition at fair market value could put someone with gains easily over $250,000,” he said.

Other year-end tax strategies, such as tax-loss selling and charitable giving, still apply in 2024.

Tax-loss selling means selling investments in non-registered accounts with accrued losses at year-end to offset capital gains realized elsewhere. Capital losses can be applied against current-year capital gains, carried back three years, or carried forward indefinitely.

Golombek noted that in 2024, the move to T+1 settlement means investors have until Dec. 30 to execute trades and still settle by year-end.

He once again reminded investors about the superficial loss rule, which applies if the security is repurchased within 30 days of the sale date by the individual, their spouse or partner, their corporation or one controlled by their spouse or partner, or a trust of which the individual or their spouse or partner is a majority beneficiary, such as an RRSP or TFSA.

In such cases, “that loss is denied and added to the [adjusted cost base] of the repurchased securities,” he said.

He also suggested being mindful of year-end deadlines for registered accounts.

Those turning 71 this year must convert their RRSPs to RRIFs by Dec. 31 as well as make any final RRSP contributions. If they have a younger spouse or partner, they can still use their contribution room after 2024 to contribute to a spousal RRSP, Golombek noted.

Those planning TFSA withdrawals in early 2025 — for a wedding, renovations or car purchase, for example — should consider withdrawing the funds in late 2024. 

“The reason is that any TFSA withdrawals will be added to your contribution room, beginning the following calendar year,” Golombek said.

He also suggested first-time homebuyers open a first home savings account (FHSA) before year-end. 

“Even if you don’t contribute right away, opening the account gives you $8,000 of contribution room, with another $8,000 added next year,” Golombek said.

Homeowners who made renovations can benefit from two tax credits. 

The home accessibility tax credit is worth up to $3,000 for certain renovations for seniors and those eligible for the disability tax credit. The multigenerational home renovation tax credit is worth up to $7,500 for creating a self-contained dwelling for a qualifying relative. 

Also, charitable gifts must be made by Dec. 31 to get a tax receipt for 2024, Golombek said.

“The big opportunity in charitable giving, as many of us would have experienced significant gains on various stock positions in non-registered accounts, is to make a gift in-kind to a registered charity,” he said. “If you do that, not only do you get a receipt for the fair market value but you also pay zero capital gains tax.”

This is especially beneficial for those with gains exceeding $250,000, given the proposed higher capital gains inclusion rate.

For those unsure which charity to support, Golombek suggested donor-advised funds. 

“A donor-advised fund is an account that you have with a public foundation where you make that gift, either of cash or of securities in-kind, you get your receipt for 2024, but the money is now invested inside the donor-advised fund,” he said. “You can decide in the future which charities you wish to support.”

For business owners considering salary versus dividends, Golombek said that, as a general rule, when a business owner needs to withdraw funds from their corporation, it is probably worthwhile taking out at least enough money to create maximum RRSP contribution room.

“So, for 2024 you want a salary or bonus of $180,500,” he said. “At 18%, that will give you the maximum RRSP contribution for next year, which is $32,490.”

Read more of Golombek’s year-end tax tips.

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