With 2024 around the corner, you’re probably starting to think about holiday dinners, vacations in the sun and New Year’s resolutions. But there’s one year-end activity you don’t want to forget about: tax planning.
While talking tax will never be as enjoyable as sitting on a beach, it’s even less fun when you’re scrambling to find receipts and claim credits and deductions at the filing deadline in April. Plus, if you get started now, you’ll also be able to take advantage of certain tax-saving opportunities during the current tax year.
“It’s like raking leaves in the fall,” says Nicole Ewing, Director, Tax and Estate Planning, TD Wealth. A little prep work can help ensure there are no nasty surprises when you venture back into the garden after the ground thaws. “The deadline matters,” she says. “If you don’t execute the thing that you’re trying to do by December 31, you may very well have lost that opportunity.”
Here are a few tax tasks to complete before the year comes to a close.
Get the most out of giving
As you probably know, the last day of the year is also the last day you can give to charity and get a Canada Revenue Agency (CRA) donation tax credit for 2023.
Look at how to make those donations as effective as possible, says Ewing. For example, consider donating taxable investments such as stocks and bonds in-kind — that is, without selling them and realizing a taxable capital gain. “Instead of writing a cheque, you’re donating publicly listed securities in-kind to wipe out your capital gain and get your charitable receipt for the full value of the investment,” she explains. This strategy takes a bit of paperwork and planning so don’t wait for Dec. 31 to pull this off — get it done as soon as possible.
Engage in tax-loss selling
If you hold investments outside of a registered account, now’s the time to review your portfolio and consider selling assets that have lost money. Net capital losses can be used to offset taxable capital gains, not just in 2023 but in any of the past three years or indefinitely into the future. For instance, if you sold an investment in 2022 that made money, you can sell a losing stock this year and complete the proper paperwork (Section III on Form T1A Request for Loss Carryback) to offset that gain and potentially get a refund.
But what if you still like the stock’s prospects or expect it to rebound? You can still sell that stock, but you’ll have to wait at least 31 days before buying shares in the company again. Buying it back sooner could trigger the “superficial loss” rule, which would prevent you from being eligible to claim the capital loss.
Top up your registered accounts
The deadline to make contributions to your Registered Retirement Savings Plan (RRSP) isn’t until February 29, 2024. but for all other registered accounts it’s December 31. For instance, if you have contribution room in a Tax-Free Savings Account (TFSA) or a Registered Education Savings Plan (RESP) and have the means to contribute, you may want to make that investment before the end of the year.
Contribution room carries forward, so it’s not the end of the world if you miss the year-end deadline. You will need to invest even more in 2024, though, if you want to max out the account. Also, the earlier you contribute and invest, the more time your money has to grow.
If you think you’ll need money for a project or anticipate a cash-flow shortfall in the next few months, this could be a good time to withdraw money from your TFSA. This is especially true if you’ve maxed out your contribution room. Why? Because you can recontribute any funds you withdraw from a TFSA, but you have to wait until January 1 of the following year. So let’s say you need $5,000 for a down payment on a car in March 2024. If you remove those dollars before the end of 2023, you can put them back anytime next year. Wait until after January 1, and you won’t be allowed to recontribute that dough until 2025.
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Here’s a tax tip that’s often missed: Keep track of out-of-pocket healthcare costs, some of which can be deducted.
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Prospective first-time home buyers have even more reason to keep the end of the year in mind. If you plan on becoming a homeowner in the future but haven’t yet opened a First Home Savings Account (FHSA), you might consider doing it now, even if you only have a few hundred dollars to contribute. That way, you capture contribution room for both 2023 and 2024.
“It’s the timing that matters,” Ewing explains of FHSAs. But before you open an FHSA, she suggests taking note of a quirk in how the contribution accumulates in this new account. “Contribution room does not carry forward indefinitely, like with TFSAs.” The maximum annual contribution of $8,000. Any unused room can be carried over, but only for one year. And remember, as with RRSPs, every contribution you make to an FHSA before December 31 comes right off your taxable income for 2023.
Nicole Ewing, Director, Tax and Estate Planning, TD Wealth, joins Kim Parlee to talk about some of the ways you can optimize your tax-planning ahead of December 31st.
Don’t forget about the medical expense tax credit
Here’s a tax tip that’s often missed — keep track of out-of-pocket healthcare costs, some of which can be deducted. “The definition of medical receipts is much broader than people might think,” Ewing says. For example, costs associated with air conditioning might be deductible.
The expenses don’t even have to be yours or your children’s. If you are the primary caregiver or have paid medical-related expenses for elderly parents or others, “you may very well have the opportunity to deduct expenses that you paid on their behalf from your own income,” she explains. The CRA has a helpful interactive guide that outlines which medical expenses may be tax-deductible. Sadly, for those about to embark on a hot winter vacation, “sunscreen isn’t going to count,” she warns, even though doctors recommend using it.
Coordinating with your partner could get you a spousal tax credit
There are many other tax-saving opportunities. If you took courses to advance your career in 2023, for example, you may be able to claim the Canada Training Credit for tuition or related expenses. Also, if you’re making a donation to a charity or tax-loss selling, talk to your spouse or common-law partner first and make moves that will have the best tax outcome for your household’s finances overall, Ewing says.
“We file our taxes individually, but the actions of our spouse and the income of our spouse does impact our planning,” she says. Regardless of who sponsored a friend’s fun run, for instance, the official tax receipt may be applied to the spouse with the higher taxable income. If one or both partners purchased their first home in 2023, either one can claim the $10,000 First-Time Home Buyers’ Tax Credit, provided they didn’t own property in the previous four years. Income or capital gains from joint accounts, however, will not necessarily be split in half. “The fact that an account is in two people’s names does not determine the tax treatment of the account,” she says.
Given that tax is complicated, talking to a tax planning professional can be helpful. But in any case, starting early will make tax season that much easier — and dare we say more enjoyable — to manage.