As each year draws to a cease many...

As each year draws to a cease many newspaper and magazine articles propound basic year-end tax planning ideas. In the midst of all these other offerings, the design of this article is to provide a more in-depth consider at some higher value planning opportunities.

Planning for capital gains and losses

To begin with, taxpayers should review their investment activity for the year and determine their realized capital gains and losse If a taxpayer has stomached a net realized loss, they should consider a los carry back against toil realized gains in any of the three prior years. If, in succession the other hand, the taxpayer has experienced a trap realized gain, they should review their portfolio for any investments with unrealized losse Any of that kind investments that are not calculate uponed to recover in value should be disposed of-that way the los realized can scion current year gains, and thereby shorten taxes payable. Capital loss carry forward balances should always be considered before engaging in any tax los selling as they may also be used to slip current year gains.

Note: 2003 is the last year in which taxpayers can carry back a clear capital loss against taxable capital gains realized in the 2000 taxation year. And because the capital gains inclusion rate and marginal tax rates for 2000 were higher than for all succeeding years, triggering capital losses now and carrying them back to 2000 will yield the maximum tax recovery

Open-market sale

There are many ways to trigger capital losse The in the greatest degree obvious way is to exchange the losing investments on the render free of access market, but it's important to understand that, for tax ends the sale is considered to have taken place in succession the settlement date, not the trade date (the arrangement date usually occurs a not many days after the trade date). Therefore, if a taxpayer wants to use tax los selling, they should confirm the last trade date for discharge in 2003 with their broker

Debt or shares of bankrupt corporations

Where a taxpayer detains debt or shares of a bankrupt corporation, they may file an election to have a be of opinioned disposition of the debt or shares for nil push ons This election is useful where the misdoing or shares are those of a de-listed or gone corporation and there is no market or exchange relating to which an arm's length disposition may be enacted. The election must be filed together with the taxpayer's tax get back for 2003.

With regard to dues the taxpayer need only establish that a particular offence has become a bad misdoing in the current year to qualify for the election. With regard to shares, generally the corporation must be bankrupt or insolvent; however, practitioners should review the qualifying conditions to render certain their client is eligible. If the taxpayer makes the election, they will be be of opinioned to have reacquired the sin or shares for nil preciousness and might therefore be taxed in succession any actual subsequent disposition.

Alternatively, the worthless misdoing or shares may be sold to an arms-length party for a nominal amount in succession or before December 31st. A legal transfer agreement should be execut to substantiate the disposition-otherwise the CCRA might disavow the loss upon audit. Note: It may be possible to claim an "allowable business investment loss" onward the deemed disposition.

Transfer to spousal trust

A capital los may also be realized from transferring the loss investments to a spousal trust at fair market value (FMV) This order has the added benefit of allowing the taxpayer to retain ascendency of the loss investments.

Normally, a los realized upon the transfer of investments by means of an individual to an "affiliated person" will be denied by dint of the stop loss rules, which judge the amount of a "superficial loss" to be nil. A superficial los generally present itselfs when a taxpayer or affiliated somebody acquires an identical property within 30 days (before or after) the los transaction and still admits the property at the fall of the curtain of that 60-day period. However, a spousal trust is not considered an affiliated one and therefore the loss triggered will not be a superficial los Note: Transfers of wealth to a spouse or a spousal trust are believeed to take place at the taxpayer's "adjusted expense base," and an election must therefore be filed for the transfer to take place at FMV This election must be filed together with the taxpayers tax get back for 2003.

Transfer capital losse to a spouse

The superficial los commands can be used to transfer capital losse between spouses. This is useful in cases where undivided spouse has realized capital gains and the other retains investments with unrealized capital losse that aren't awaited to recover in value.

The los investments are transferred to the taxpayer's spouse at FMV and an election must be filed for the transfer to take place at that value. Because the transfer takes place at FMV there will be no attribution of any posterior gain or loss. The superficial los dominions will deny the loss realized forward the transfer, provided the recipient spouse still have a title tos the property 31 days after the transfer. However, the denied los will be added to the recipient spouse's adjusted richness base of the property. The investments will then be sold in succession the open market to realize the los which can then be used to slip the recipient spouse's current year gains, or be carried back to a prior year.