With the end of the year upon us, taxpayers will want to consider all the tax planning opportunities available to them. Your particular situation and goals will dictate which year-end planning strategies are right for you. IG Wealth Management’s year-end tax planning checklist can help you understand which opportunities are most relevant to you.
Although you can make an RRSP contribution during the first 60 days of 2023 to deduct from your 2022 taxable income, most tax-related strategies must be implemented by December 31, 2022. The key to effective planning is good preparation. In this article, we will discuss the main opportunities and strategies to consider.
Investment planning opportunities
Whether you have non-registered, registered or both investments, be sure to review these accounts before the end of the year.
If you have non-registered investments with unrealized capital losses, you could adopt this strategy called “ tax loss selling ”. Realized capital losses must first be applied against net capital gains realized in that year. If these capital losses exceed any capital gains recognized in the current year, they can be carried back to offset net capital gains realized in any of the prior three years (or carried forward indefinitely) .
If tax-loss selling is a strategy you’re interested in, it’s important to be aware of a complex set of tax rules that could potentially invalidate those capital losses. These rules are called the “ superficial loss rules ”. You can find more information about the superficial loss and tax loss selling rules here . Finally, if you are considering this approach, we also encourage you to speak with your accountant to ensure that any loss you trigger can be claimed in the proper way.
If you’re thinking of selling a non-registered investment with an unrealized capital gain, you could delay selling the investment until the new year to defer taxes on the capital gain for a year. While this may be advantageous from a tax perspective, you will also need to consider your investment goals when considering this option.
You could also donate to charity before the end of the year to take advantage of the charitable donation tax credit for 2022. If you have non-registered marketable securities (like mutual fund shares) with unrealized capital gains, you should consider using these investments to donate assets to charity. You will get a charitable donation tax receipt for the market value of the investment and the capital gain realized from the donation will be tax exempt.
With respect to registered accounts , planning questions will vary depending on the type of account and your particular situation. Our year-end tax planning checklist details the issues that arise at year-end with each type of account. Here are some examples :
If you plan to withdraw from a TFSA, a withdrawal before the end of 2022 will result in additional TFSA contribution room in 2023, while a withdrawal from a TFSA in 2023 will not result in additional TFSA contribution room before 2024. If you plan to withdraw from a TFSA in early 2023, see if it is possible to do so before the end of 2022 instead.
Do you have a child who turns 15 in 2022 and has not yet opened a Registered Education Savings Plan (RESP)? Making an RESP contribution of at least $2,000 (without exceeding the annual limit) before December 31, 2022 would not only allow you to receive the Canada Education Savings Grant for that year, but also for two additional years. in respect of contributions up to a maximum of $5,000 per year.
If you plan to buy a property in 2023 or 2024 and use the Home Buyers’ Plan (HBP) to help finance the down payment, you should wait until 2023 before making the withdrawal in the PCR framework. This will give you one more year to buy a qualifying property than if you withdraw the funds before the end of 2022 (until October 1 , 2024, rather than October 1 , 2023). It will also push back the date you have to start repaying the HBP by a full year.
Income splitting opportunities
Income splitting can be one of the most effective ways to save your family taxes now and in the future. Here are some examples :
If you’re saving for retirement, consider a spousal RRSP. Since the pension income splitting rules allow a person age 65 or older to allocate up to 50% of their RRIF income to the other spouse, a spousal RRSP contribution will result in a tax deduction for you now, and all future retirement income will be taxed in your spouse’s name (assuming the spousal RRSP attribution rules are not triggered), regardless of age.
Some income splitting strategies can be done with adult children or your spouse or common-law partner, such as giving money to a spouse or adult child to contribute to their TFSA.
Another consideration is lending funds at the prescribed rate to your spouse or adult child, directly or indirectly through a family trust, for investment in non-registered funds. Although it was 1% at the start of the year, the current prescribed rate is now 3%, and further increases may occur next year. To learn more about prescribed rate loans, click here .
There are many other strategies that might work for you. Here are some other things you could explore in more depth with your IG Consultant:
Maximizing your tax credits and deductions
Planning for people with disabilities