Q. Can I transfer my Suncor shares to my minor children and deduct the losses on my tax return? My kids have no income and therefore future income would be taxed at a lower tax rate. Is this a good strategy?
– Oren, Thornhill
A. Tax loss selling can be an excellent strategy to reduce taxes. Individuals can use tax losses or gains in the year to take advantage of valuable tax savings. However, taxpayers should be aware of caveats and proceed carefully or obtain professional advice.
Tax loss selling occurs on the disposition or deemed disposition of an investment that is in a loss position. These capital losses can be applied against capital gains or carried back three years to recover taxes paid in prior years. A common method for an individual to receive a tax benefit without selling the actual shares, is to trigger a loss by transferring the shares to their children. As a result, the loss is recognized by CRA and the shares continue to be in family. The transferring parent is afforded the tax losses in the year.
Secondly, any future capital gains are taxed in the hands of the recipient (child). For 2009, a child with no other income but capital gains of $20,640 would pay no taxes, due to the basic personal tax credits available to all taxpayers. That’s a handsome amount kept in the family.
Caveat – Although, the gifting parent is relieved of capital gains tax, dividends or interest are attributed back to the parent who must report this income, at least until the child turns 18 years old.
Q. Must I report and/or pay tax on pension income I receive from my country of birth?
– Bruna, Vaughan
A. Residents of Canada must report all worldwide income. Foreign pensions over $1,000 are taxed by CRA. Tax Treaty conventions can avoid double taxation.
– Henry Choo Chong, CGA, can be reached at choochonghcga@yahoo.ca
