Time to Reduce Your Taxes for 2023 and Beyond
November 23, 2023 by David Christianson
As you’ve heard me say before, NOW is the time to review your tax planning and make sure you have done everything you can to reduce taxes for this year and beyond.
And by “now”, I mean whenever you are reading this, whether in the last week of November, when written, or any time of the year. We can’t just plan our taxes in April now, can we? In almost all cases, April is way too late for the previous year.
Although the deadline for RRSP contributions is end of February, now is that the time to make decisions about your overall strategy. And almost all other tax deadlines are December 31, so listen up.
By the way, if you turn(ed) 71 this year, then your RRSP deadline is actually December 31, as you are not allowed to contribute in the year in which you turn 72 or later.
Tax Loss Selling
If you have securities that have declined in value from the amount you paid, selling to realize a loss will offset other realized gains in the year. As well, you can carry back net losses for this year to the previous three tax years, and potentially get back tax that you already paid on net gains in those year.
Net losses for the year (losses exceeding realized gains) can also be carried forward indefinitely, to offset future capital gains.
This year, even government bonds and tradeable GICs showed declines in price as a result of rising interest rates and can be used to realize losses if sold. Stocks, mutual finds and ETFs in the telecom, real estate and utilities sectors also declined over the past year, so recent purchases may show available losses.
If you have a corporation through which you operate a business or professional practice and have an accumulated investment portfolio, you might also look at capital GAINS harvesting, to generate room in your CDA account. Definitely consult your accountant or financial advisor to discuss any such opportunities.
To realize a loss for tax purposes, you cannot re-purchase an identical asset for 31 days, though you can buy similar investments if you still like that sector. Any sales must settle before year end. Make your sales order by Christmas to make sure.
Charitable Donations
To take advantage of a tax credit on this year’s taxes, you must donate prior to year end. On the first $200 donated in the year, the total tax credit is about $26 for every $100 donated (15% federal and 10.8% provincial), rising to $46 per $100 donated above $200 in the year.
You can claim unclaimed donations from the previous five years, as well. Therefore, it might make sense to carry forward donations if your total is $200 or less per year. Then you can access the higher 29% federal credit and 17.4% Manitoba credit on the total amounts in excess of $200.
You need to keep your official receipt from the registered charity, as the CRA is commonly requesting these after the fact, for people who file their taxes electronically.
FHSA
New for 2023 is the tax free First Home Savings Account, which provides big tax incentives for people saving toward their first home. It really works.
Your contribution is tax-deductible, just like an RRSP, but withdrawals to purchase a qualifying home are tax-free, like a TFSA. If you don’t end up purchasing a home, you can transfer the money tax-free to your RRSP, or withdraw and pay tax.
The annual contribution limit is $8,000 and the deadline is December 31. You can contribute in 2023 but still carry your claim forward to a future year, if you expect to be in a higher tax bracket in the future.
Contributions to Registered Education Savings Plans and Registered Disability savings Plans also have a December 31 deadline.
If you plan to make a TFSA withdrawal in the next few months, do it before December 31. Then you get the contribution room back January 1, rather than waiting another year.
By the way, the contribution room for TFSA is $6,500 for 2023, and goes up to $7,000 for 2024. If you can muster up the money, especially from your current taxable investments, make sure you do it.
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Dollars and Sense is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized professional advice.
Please consult legal, tax, insurance and investment experts for advice on your unique situation.
David Christianson, BA, CFP, R.F.P., TEP, CIM is recipient of the FP Canada™ Fellow (FCFP) Distinction, and repeatedly named a Top 50 Financial Advisor in Canada. He is a Senior Wealth Advisor and Portfolio Manager with Christianson Wealth Advisors at National Bank Financial Wealth Management, and author of the book Managing the Bull, A No-Nonsense Guide to Personal Finance.
