It is hard to believe there are only six weeks left in 2023. As the end of the year fast approaches, like me you are probably looking forward to enjoying the upcoming festive season. However, along with your last-minute shopping, here are some time-sensitive tax-tips that will need action before the end of the December.
Tax-loss Selling
Tax-loss selling is the art of selling investments in a non-registered portfolio that have accrued losses before the year-end; to offset other capital gains you’ve realized in the portfolio. The losses that you incur don’t have to be used in the current year, they can be carried back up to three years or carried forward indefinitely to offset gains in those years. To crystalize the loss in 2023, you must complete the trade no later that December 27th this is because it takes 2 days for a trade to settle, and the 30th and 31st fall on a weekend this year.
Claiming a Deduction
If you are planning on claiming expenses to receive a tax deduction for 2023, you must pay the expenses before the end of the calendar year. “For example, if you have interest expense that you paid on
money that you borrowed for investing or investment counseling fees, things like that for
non-registered accounts, you want to pay that by the end of the year to make sure you can claim
your deduction in 2023.” – Jamie Golombek
Converting your RRSP
If you’re turning 71 this year, then you must roll your RRSP to a RRIF before the end of the year. One interesting idea if you have earned income for 2023, is to over contribute to your RRSP in December as the earned income will have generated contribution room for 2024. You will be penalized 1% for the over contribution, however that goes away as of January.
New Alternative Minimum Tax Rules
Taxpayers and investors need to be aware of the new Alternative Minimum Tax (AMT) rules that are set to come into force Jan 1, 2024. This is a parallel tax system that targets a minimum level of tax on high income earners who claim various deductions, exemptions, and credits to reduce the amount of tax that they owe to very low levels. If affected, an example would be an investor who has triggered a capital gain. Capital gains are normally taxable about 50% however, under the new AMT rule, the capital gain would be taxable about 100%.
FHSA
Finally, for those of you who’re looking to purchase a home in the next 15 years it may be beneficial to open a Tax-Free First Home Savings Account (FHSA). Not only will it help you save for a down payment, but similarly to the RRSP you will get a tax deduction on your contributions. This is the first year you can open an FHSA which allows you $8,000 per year contribution to a maximum of $40,000. It is important to remember you don’t have to claim the deduction in the year you contribute, you can carry it forward into a future year when you have a higher income; and would benefit greater from the tax deduction.
If you have any questions or want to review your portfolio, please don’t hesitate to contact us.
Have a great weekend,
Tracey and Paige
Source: https://www.advisor.ca/podcasts/year-end-tax-planning-for-2023
Photo by Nick Morrison on Unsplash