As 2023 draws to a close, there are some key changes coming that investors may want to prepare for, including an increase to the TFSA contribution limit for 2024 and adjustments to the Alternative Minimum Tax system. Nicole Ewing, Director, Tax and Estate Planning at TD Wealth, discusses what to expect with MoneyTalk’s Greg Bonnell.
As the new year quickly approaches, you may want to carve out some time over the holiday season to consider your financial house-- getting it in order for 2024. Joining us now to discuss, Nicole Ewing, director of Tax and Estate Planning at TD Wealth. Nicole, great to see you, as always.
Thank you, Greg. Great to be here.
All right, so we've got a few holiday things to get through in the next couple of days-- a bit of a crunch-- but then, hopefully, people have some downtime over the break. Heading into 2024, what do we need to be keeping in mind?
Well, we've got some great news heading into 2024 in terms of the TFSA limit being increased. So that will go up to $7,000. And it will also allow any contributions that were taken out this year-- those will be regenerated. And you'll have the opportunity to recontribute those funds as well.
So we're looking at total contribution room, if you were starting in 2009, eligible the whole time-- you will now have $95,000 of contribution room to be able to continue to earn funds in the account tax-free, take them out tax-free. So that's good news, I think. An extra an extra $7,000 of tax-free contributions is certainly good.
All right, so that's positive heading into 2024, and thinking about that as part of a strategy for building wealth over time, and estate planning. You and I have talked about this several times throughout the fall-- the change to the alternative minimum tax. What do people need to be aware of on this front as we get closer and closer to 2025?
Yes. So that's one of the few changes that's coming in 2024. So the alternative minimum tax, just to make sure everyone's aware, is essentially a parallel tax calculation that's done right alongside the normal tax calculation that you would do. And what's changing next year is the way that the calculation is going to be determined.
So the credits that would be included, the deductions that would be included, the exemption amounts-- those are all changing quite a bit. And depending on your personal circumstances, if you're somebody who earns significant income, a passive income, capital gains, or if you make significant contributions to charity, you might be caught by these rules.
And we've seen the increase in the exemption amount go up from $40,000 to $173,000. So quite substantial. But that doesn't apply to trusts. So if you're earning income in a family trust, you really want to make sure that you look in to see how that calculation might be impacting you. Perhaps there's ways to do quick withdrawals while you're still in 2023.
But just to be aware of some of those changing rules-- and as with anything, we want to be thinking about that sort of strategy in terms of your overall strategy. So how is that impacting your RRSP contributions, your TFSA contributions? Do you have the opportunity to perhaps earn income in a different way?
With the change of the AMT rules, one of the big changes is the ability to carry forward some of your losses for the purpose of that calculation. So you'll want to make sure that you're factoring into your overall cash flow, and savings, and investment strategies.
Some interesting things there to keep in mind. I got an email in my WebBroker inbox this morning reminding me that if you want to sell security to realize a capital gain or a loss for tax purposes, your time is running out. I mean, we're not even talking about a matter of weeks anymore. We're talking about days. We're getting very close to those limits.
I'm very reluctant at this point to be talking about year-end tax planning because, to be frank, I mean, this is the year end. And it will take some time for those securities and those trades to be processed. And so now is really not the time to be making panicky decisions.
We want to be making our tax strategy really throughout the year, and looking at things-- October, November-- if we need to do any of our year-end strategies. But there are certain things you could do. So for example, you might want to-- if you're planning to buy a home next year and you qualify for the first home savings account, you might want to hurry up and open that account now.
That would give you carry-forward room into 2024. So it'll allow you to make two contributions of $8,000. And that way, you've doubled the amount that you can utilize towards that home. So there are some, I'd say, last-minute things. Same with charitable donations if you're doing a direct gift. You still have time until December 31.
But if you're thinking of doing those really effective giving strategies, like donating publicly traded securities that have an accrued gain, that deadline is now because there will be a little bit of a delay in getting some of those things processed and over to the charities in time. But it's too late, I'd say, for some of the strategies that may take a little bit longer to implement. But we still do have the opportunity to do some last-minute things.
Again, we talked about the TFSA. If you are planning on using some of that money but know that you'll be able to recontribute next year, you might think, for example, about taking that money out before the 31st of December because that contribution room will regenerate in January, as opposed to taking the funds out in January and then needing to wait the full 12 calendar months in order to recontribute again.
So it's not too late to do some things to put us in a better position, but really, we want to be thinking about any of these tax strategies all year long, as opposed to just the last week of the year. [CHUCKLES]
Yeah. When I saw this email, and then you were mentioning about that-- this is a strategy you should have been deploying for the past couple of months-- it took me back to first year at university. It's, you've got an essay due the next day. It's midnight. And you say, I'm going to read the book. And I'm going to write the essay. I'm not going to sleep. I'm going to get it in under the wire. And then you're really playing a tricky game on it.
We don't want to be doing all-nighters for tax planning, I think.
The accountants can do that in tax filing season, but we need to be thinking a little bit more long-term about our strategies, and things like if we're going to be making contributions, for example, in the new year. Maybe we're going to make a contribution to our RRSP. We do have the option to either use that RRSP contribution against this year-- 2023's-- income, or next year's income-- 2024.
So there's some flexibility there, but with any of these things, we want to be thinking, what can I do now to put me in a better position six months, a year, 10 years from now? And what's the saying about the best time to plant a tree? [CHUCKLES] So similarly, it's going to apply to tax planning. The best time to do it is all year long. The second best time to do it is as soon as you can.
Yeah. That's the great thing about a new year, right? On top of resolutions, what everyone else says, you might have said, OK, I left it too late for this year. I didn't execute it this year perhaps the way I wanted to. And the clock is going to turn over. The calendar is going to turn over. It's going to be 2024. And you start getting your act together, right?
Yeah. We reset, right? We start again. And maybe that's something. You can use the time over the holidays to be thinking about, what did you struggle with this year in terms of managing your finances and your different strategies? Is it something that perhaps you want to start putting in a certain day a month that you review these things, or having conversations with your family members about-- this is a time when families are all together in the same room. You might have the opportunity to just check in on each other and make sure that everybody is aware of the different opportunities that are available.
You might have children, for example, who are turning 18 this year, and might be able to make their first TFSA contribution. That might be a very nice holiday gift for somebody. So yeah, working together as a family, using this opportunity to really think through what behavioral changes you might want to make in the new year.
But it's an opportunity to reset. We have new contribution room in our RRSPs, new contribution room in our TFSAs, and FHSAs, and RESPs. So there's a lot that we can do in the new year. And yeah, take it as a new opportunity for a fresh start. [AUDIO LOGO]