Personal 2023 year-end tax planning considerations and tax reminders
December instalment reminder
Please ensure you pay your personal income tax instalments no later than Dec. 15, 2023, if you are required to make instalment payments. Starting Jan. 1, 2024, the interest rate charged by the Canada Revenue Agency (CRA) will increase to 10 per cent. If you have late‑paid any previous instalment, you can make the Dec. 15 instalment payment early to help mitigate the interest of late‑paid instalments.
Reporting requirements for trusts (including bare trusts)
The enhanced reporting requirements for trusts apply to taxation years ending after Dec. 30, 2023. These reporting requirements will increase the disclosure required for settlors, beneficiaries and trustees, and will also create filing requirements for trust arrangements that previously did not require annual filings with the CRA.
First Home Savings Account
A First Home Savings Account (FHSA) is a registered plan for Canadians allowing first‑time home buyers to save for their first home tax‑free (up to certain limits). Canadian residents aged 18 years or older may open an FHSA. The annual contribution limit is $8,000 and the lifetime contribution limit is $40,000.
Eligible individuals should open an FHSA in 2023, even if they cannot make the full contribution, as the unused room (to a maximum of $8,000) can be carried forward to a future year. Contributions will generally be tax‑deductible and qualifying withdrawals will not be taxable. Eligible contributions made in the tax year can be carried forward and deducted in a later tax year. Unlike RRSPs, contributions made to an FHSA within the first 60 days of a calendar year can’t be deducted from the previous taxation year.
Your FHSA must be closed no later than 15 years after opening the account or the year you turn 71, whichever comes first. Any remaining funds not used to make a qualifying withdrawal can be transferred to an RRSP on a tax‑free basis or will need to be included as taxable income in the year the amounts are received.
Tax‑Free Savings Account contributions and withdrawals
You should consider contributing to your Tax‑Free Savings Account (TFSA) or making a withdrawal prior to Dec. 31, depending on your circumstances. The 2023 annual limit for these accounts is $6,500 if you are 18 years of age or older and a resident of Canada. The lifetime contribution limit is up to $88,000. You can confirm your lifetime contribution limit with the CRA.
Withdrawals from TFSAs are not added back to your contribution room until the subsequent calendar year. Therefore, it may be advisable to make the withdrawal prior to the end of 2023 – if you are planning any withdrawals during 2024. Any withdrawals completed during 2023 will be added back to your contribution room on Jan. 1, 2024, allowing you to recontribute any excess funds you have available throughout 2024.
Please note that as of Jan. 1, 2024, the annual limit for these accounts has increased to $7,000 if you are 18 years of age or older and a resident of Canada. The lifetime contribution limit is now up to $95,000. You can confirm your lifetime contribution limit with the CRA.
Registered Retirement Savings Plan contributions
Contributions to Registered Retirement Savings Plans (RRSPs) made prior to Feb. 29, 2024 can be claimed as a deduction on your 2023 personal income tax return. If you turned 71 during the year, RRSP contributions must be made by Dec. 31, 2023. If you are over the age of 71 and have earned income and contribution room, you can make contributions to the RRSP of a spouse who is 71 or younger. You can confirm your 2023 contribution room by reviewing your 2022 Notice of Assessment. Simply contact us for assistance in determining the optimal RRSP contribution to make for the year.
The amount of RRSP over‑contributions must not exceed the RRSP contribution limit by more than $2,000 at any time; otherwise, a penalty will be imposed on the excess amount. When possible, RRSP contributions should be made early in the year to benefit from the longer period that income is earned on a tax‑sheltered basis within the RRSP.
Interest paid on a loan contracted to contribute to an RRSP is not tax deductible. RRSP management fees are also not deductible.
Home Buyers’ Plan repayments
2023 Home Buyers’ Plan (HBP) repayments are also due no later than Feb. 29, 2024. These repayments will be deducted from any regular RRSP contributions made for the year. Your minimum repayment amount will be included in taxable income for the year if you do not make any RRSP contributions prior to Feb. 29, 2024.
Charitable donations
Charitable donations are generally limited to 75 per cent of net income. Unclaimed amounts can be carried forward for five years.
It is generally advantageous to donate publicly traded securities rather than cash to a registered charity. The amount of the donation receipt will be equivalent to the fair market value of the securities at the time of donation. For private corporations, 100 per cent of the capital gain is credited to the capital dividend account.
Strategies concerning the donation of marketable securities can be complicated. Donors should consult their advisors before donating marketable securities.
Political contributions
The maximum amount of the federal tax credit for personal contributions to a recognized federal party is $650 for 2023. In Ontario, the maximum provincial personal tax credit is $1,552 if a contribution is made to a recognized provincial party and you reside in that province at the end of the year.
Capital gains and losses
Realized capital losses can be applied against capital gains reported during the year, carried back to apply against capital gains reported in any of the three preceding years, or carried forward indefinitely to apply against future capital gains.
You may want to consider realizing capital losses before year‑end to apply against capital gains realized during the year. The trades must be settled prior to Dec. 31, 2023, to report on your 2023 tax return. We recommend executing trades no later than Dec. 25, 2023, and confirming the settlement date with your broker. The same securities should not be repurchased 30 days before or 30 days after the settlement date to avoid adverse tax consequences.
You may also want to consider realizing capital gains prior to year‑end if you have capital losses to report during the year. Any sale of securities should be discussed with your investment advisor.
Principal residence rules for 2023
Did you sell your principal residence in 2023? Did you own the property for less than 12 months prior to the sale? If so, new “residential property flipping” rules may apply to you. Talk to your advisor to see how these rules may impact you.
Registered Education Savings Plan (RESP)
A Registered Education Savings Plan (RESP) can assist individual contributors in achieving tax‑free growth on the funds they will use to pay for the post‑secondary education of designated beneficiaries – usually their children or grandchildren. The lifetime contribution limit that may be contributed to all RESPs of a beneficiary is $50,000, with no annual limit. No deduction is available for RESP contributions.
An RESP is also eligible for government assistance, such as the Canada Education Savings Grant (CESG). The current annual maximum CESG per beneficiary is $500 (i.e., 20 per cent of the first $2,500 of contributions paid annually). Each child is entitled to a cumulative limit of $7,200 until the age of 17. A family that has not contributed to their child’s RESP for one or more years can receive a grant of not more than $1,000 as a CESG in a year (i.e., on a maximum contribution of $5,000).
Taxpayer relief
You have until Dec. 31, 2023 to make a taxpayer relief request related to 2013. This deadline specifically applies to relief requests relating to the 2013 tax year, as well as any interest accrued during the 2013 calendar year for any tax year.
Disability tax credit
The disability tax credit (DTC) is a non‑refundable tax credit that assists taxpayers with severe and prolonged health impairments to reduce the amount of tax they may have to pay. An application (Form T2201) must be completed by your medical practitioner and submitted to the CRA for approval. If approved, you will be able to claim the credit on your personal tax return. If you were eligible for the DTC in past years and did not claim the credit, you may be able to adjust your returns going back up to 10 years.
Important dates*
Dec. 15, 2023 |
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Dec.&Nbsp;27, 2023 |
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Jan. 30, 2024 |
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Feb. 29, 2024 |
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March 15, 2024 |
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March 30, 2023 |
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April 30, 2024 |
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June 15, 2024 |
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*Deadlines falling on holidays or Sundays may be extended to the next business day.
Please contact us if you would like to discuss any of the above. We are always here to help.
Please note that while every effort has been made to ensure the accuracy of this information, posts written in the past may not be fully reflective of current applicable obligations, rights and benefits.