With most Canadians spending the majority of their time at home, they have had the time to review their portfolios to manage the volatility. However, it is also very important that they put attention towards their overall wealth plan.

During this market and economic downturn, there are planning opportunities that can be explored for long term success. These strategies can prove to be even more effective during this time. Listed below are 5 ideas that are worth reviewing with your advisor.

1. Capital Loss Recognition

Investors should review their portfolio to see if this is an opportune time to realize capital losses that can be used to reduce capital gains. Any losses can be applied to offset capital gains realized in the previous three tax years or carried forward indefinitely for future capital gains. By creating this capital loss, investors have the opportunity to realize capital gains in securities that they had wanted to liquidate but never had the chance due to tax consequences.

When using this strategy, it is important to avoid the ‘superficial loss rule’ as it can deny the immediate use of the loss. The superficial loss rule occurs when an individual sells a security for a loss and the individual or affiliated person (ie. Spouse) purchases the identical security within a 30 day period. 

2. Maximizing Tax Credits

With COVID-19, many employers require their employees to work at home. If you are required to work at home for more than 50% of the time, you may be eligible to claim a tax deduction for the home expenses that relate to your work. This expense could relate to home office space, internet expenses, and etc. Your employer will need to provide you with a signed CRA Form T2200 “Declaration of Conditions of Employment”.

3. Reducing RRIF Minimum Withdrawal

In an attempt to provide relief to retirees, the Federal Government has permitted investors to reduce their RRIF minimum withdrawal by 25%. In other words, you are only required to withdraw 75% of your minimum RRIF payment enabling you to report less taxable income and keep more funds within the RRIF account. The reduced payment also helps investors by delaying taxes and limiting the need to sell distressed investments to satisfy a RIF payment. Investors should consider taking advantage of this RIF withdrawal reduction if they do not require the full cash payment from the RIF, or have other non-registered funds to support any cash flow shortfalls.

4. Prescribed Rate Loan

Many investors are looking to split income with family members and to shift investment income from a higher marginal tax bracket individual to a lower income tax bracket individual. These investors can benefit from a prescribed loan rate strategy.

If you are the higher income earner, you can loan personal funds to a lower income spouse or a family trust. Income splitting is permissible when the loan charges a prescribed interest rate. Going forward, the investment returns net of the loan interest payment can be taxed in the hands of lower tax rate beneficiaries. Currently, the prescribed rate is at 2%, but with the low-interest rate environment, the CRA may lower it in the future. Should this take place, this strategy becomes more financially attractive as more income can be taxed at lower tax rates.

5. Estate Freeze

For those business owners that have suffered from a depreciated value in their business due to the economic downturn, this could be a great opportunity to take advantage of an estate freeze. An estate freeze locks in your personal tax liability attributed to the growth of your business. Hence, with a lower business valuation, the tax liability can be fixed at a lower level. Any taxes related to the business’s future growth will be attributed to your successors.

The strategies listed are some ideas that one can take advantage of during these unique times. Consult your advisor to find the most appropriate wealth planning solutions that may be suitable for you.