The new year is around the corner. But before you shut the door on 2023, there are some important upcoming tax deadlines to consider. Nicole Ewing, Director, Tax and Estate Planning, TD Wealth, joins Greg Bonnell to explain why now is the time to finalize plans for charitable donations, capital losses, RESP contributions and more.
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First off, let's get right into it. This is the season for charitable donations. There are some deadlines to consider as well. Walk us through it.
That's right. So we have a deadline of December 31st. But I would caution people to not wait till that last minute. So if, for example, you're using that fantastic strategy of donating publicly-traded securities that have accrued gains on them, wipes out the gain and you get the full fair market value for your donation. We need to be thinking about that well in advance of the December 31st date, just to make sure we have time for settlement and for trades to go, go through in time.
Okay. So that's an important one in the charitable season. There's also a strategy around this time of year for some investors perhaps looking at their portfolio and some of their positions aren't in the money ... tax loss harvesting. Explain to us what we need to be mindful of.
Right. So, tax loss harvesting, essentially, we are looking at our portfolios, identifying where we might have some losses that we want to trigger so that we can use those losses to offset gains. So we want to have a look through and see how our portfolio is doing. But caution around currency and exchange rates, because that's very important when we're looking at the cost base and the fair market value of those securities ... we, we need to be mindful ... if this is U.S. securities, for example. We need to be looking at the U.S. dollar rate compared to when you purchased it and what it's at now. So making sure that we factor in the exchange rate so that we don't inadvertently trigger a gain when we're trying to be harvesting for losses, although, gains aren't so bad either.
All right. So important one to consider there. I know from what I'm living through right now that post-secondary education is very expensive. Got two sons right now in university at the same time. RESPs. Talk to me about those and the deadlines there.
So again, deadline of December 31st. So what's important to think about here is that when you make those contributions to an RESP, up until the child ... student is 15, you are eligible to receive a grant back up to ... 20% of your contribution up to $500. So if we're making a $2,500 contribution, we get a $500 grant from the government. We do have the ability to carry that forward, but only one year. So you can contribute the $5,000 in the following year and be able to get that full $1,000 grant. But we need to be ... have the account open and making those contributions in order to be getting those grants.
I've already listed a number of things on my calendar here. We have more, though, to go through TFSAs -- Tax-Free Savings Accounts. What do you need to know both about contributions and withdrawals.
This is a good news story. So if you are thinking about withdrawing in the next couple of months, you might want to think about advancing that to take out the money now because your contribution room regenerates January 1st. So rather than dipping into the funds in January and wanting and having the money to recontribute later in the year, you would have to wait that full calendar year till January. So if you're going to take the money out, now's the time. But we have some great news on TFSAs ... the contribution limit is going up to $7,000 in 2024. So that's additional room that we can put our investments into these accounts and have that growth accruing tax free. We can take the money out tax free, very, very efficient way of investing.
All right. That's some advice I'm going to put to work, because those post-secondary educations are looking for more money from me in January. I got to get that in order. First Home Savings Account. This is a bit of a new one for people. What do they need to consider before opening one in the new year?
Well, so this is an interesting one because, again, the end of the year, December 31st, is the relevant time period. But we only have the ability to carry forward the contribution room by one year. So if you're not necessarily thinking about purchasing, you might want to be delaying. Otherwise you might want to be thinking about some of the strategies that you could do. But again, opening that account is going to give you contribution room for two years come January. So making that contribution now or opening that account now would allow you to get the benefit of that two years worth of the contribution room from the First Home Savings Account. If you wait until January, you'll have missed the opportunity to have this year's contribution room available, but you can carry it forward to next year. Beyond that, we might need to be thinking about some other options.
Important to keep that in mind. I feel like we're running the whole gamut of life here. Let's talk about people who turned 71 this year. RRIFs ... conversion deadlines. What's going on there?
So the conversion deadline of December 31st of the year in which you turn 71. So those who are 71 now need to be making decisions about what they're going to do with their RRSPs. If you don't make the decision, the decision will be made for you and that entire RRSP will be included in your income. And it will be sent out to you. So we want to be thinking about our options. We can convert it into an annuity, we can convert into a RRIF, but we need to be doing that by December 31st of the year in which we turn 71. And for those who aren't turning 71 or haven't turned 71 this year, look at your RRSPs as well based on your income this year. Maybe it's a little bit lower. Maybe we want to be thinking about some drawing down on some of those RRSP funds a little bit earlier, depending on what our retirement plans are. If we're in a lower tax bracket this year and we want to reduce the amount of mandatory withdrawals that would be required to be taken once we are in a RRIF.
Right, Nicole. The funny thing about deadlines is there's usually consequences for missing them and getting beyond them. Something specific on the tax front ... the interest rate on overdue taxes as of January 1st, I understand it's going up.
It is going up. So as with a lot of rates when it comes to taxes, it's attached to the to the interest rates and as they climb so too does the interest that the government wants. And when we think about late filing, the the intention is to want to discourage people from doing that. We want people to be filing their taxes. And as recently as second quarter 2022, that overdue amount was 5%. Some people sort of thought of that as maybe a low cost way of borrowing and putting their money elsewhere. It is going up to 10% as of January. So late filing, I would suggest it is not a great idea. This is in addition to the late filing penalty. So this is the amount on overdue taxes. File your returns. Get those in at least stop the penalty that you would have for non-filing. But we need to be mindful that any late payments on our outstanding taxes at 10% as of next year.
Nicole, we covered a lot of ground. You laid it out nicely and clearly. Still, there's a lot here. If someone feels uncomfortable, should they be talking to somebody?
Oh, absolutely. Work with your financial advisors, your investment advisors, your tax advisors. Make sure that they're aware of your personal circumstances and the goals that you are trying to achieve, and they can help you navigate all of these questions and figure out solutions that are best suited for you.
That's right. So we have a deadline of December 31st. But I would caution people to not wait till that last minute. So if, for example, you're using that fantastic strategy of donating publicly-traded securities that have accrued gains on them, wipes out the gain and you get the full fair market value for your donation. We need to be thinking about that well in advance of the December 31st date, just to make sure we have time for settlement and for trades to go, go through in time.
Okay. So that's an important one in the charitable season. There's also a strategy around this time of year for some investors perhaps looking at their portfolio and some of their positions aren't in the money ... tax loss harvesting. Explain to us what we need to be mindful of.
Right. So, tax loss harvesting, essentially, we are looking at our portfolios, identifying where we might have some losses that we want to trigger so that we can use those losses to offset gains. So we want to have a look through and see how our portfolio is doing. But caution around currency and exchange rates, because that's very important when we're looking at the cost base and the fair market value of those securities ... we, we need to be mindful ... if this is U.S. securities, for example. We need to be looking at the U.S. dollar rate compared to when you purchased it and what it's at now. So making sure that we factor in the exchange rate so that we don't inadvertently trigger a gain when we're trying to be harvesting for losses, although, gains aren't so bad either.
All right. So important one to consider there. I know from what I'm living through right now that post-secondary education is very expensive. Got two sons right now in university at the same time. RESPs. Talk to me about those and the deadlines there.
So again, deadline of December 31st. So what's important to think about here is that when you make those contributions to an RESP, up until the child ... student is 15, you are eligible to receive a grant back up to ... 20% of your contribution up to $500. So if we're making a $2,500 contribution, we get a $500 grant from the government. We do have the ability to carry that forward, but only one year. So you can contribute the $5,000 in the following year and be able to get that full $1,000 grant. But we need to be ... have the account open and making those contributions in order to be getting those grants.
I've already listed a number of things on my calendar here. We have more, though, to go through TFSAs -- Tax-Free Savings Accounts. What do you need to know both about contributions and withdrawals.
This is a good news story. So if you are thinking about withdrawing in the next couple of months, you might want to think about advancing that to take out the money now because your contribution room regenerates January 1st. So rather than dipping into the funds in January and wanting and having the money to recontribute later in the year, you would have to wait that full calendar year till January. So if you're going to take the money out, now's the time. But we have some great news on TFSAs ... the contribution limit is going up to $7,000 in 2024. So that's additional room that we can put our investments into these accounts and have that growth accruing tax free. We can take the money out tax free, very, very efficient way of investing.
All right. That's some advice I'm going to put to work, because those post-secondary educations are looking for more money from me in January. I got to get that in order. First Home Savings Account. This is a bit of a new one for people. What do they need to consider before opening one in the new year?
Well, so this is an interesting one because, again, the end of the year, December 31st, is the relevant time period. But we only have the ability to carry forward the contribution room by one year. So if you're not necessarily thinking about purchasing, you might want to be delaying. Otherwise you might want to be thinking about some of the strategies that you could do. But again, opening that account is going to give you contribution room for two years come January. So making that contribution now or opening that account now would allow you to get the benefit of that two years worth of the contribution room from the First Home Savings Account. If you wait until January, you'll have missed the opportunity to have this year's contribution room available, but you can carry it forward to next year. Beyond that, we might need to be thinking about some other options.
Important to keep that in mind. I feel like we're running the whole gamut of life here. Let's talk about people who turned 71 this year. RRIFs ... conversion deadlines. What's going on there?
So the conversion deadline of December 31st of the year in which you turn 71. So those who are 71 now need to be making decisions about what they're going to do with their RRSPs. If you don't make the decision, the decision will be made for you and that entire RRSP will be included in your income. And it will be sent out to you. So we want to be thinking about our options. We can convert it into an annuity, we can convert into a RRIF, but we need to be doing that by December 31st of the year in which we turn 71. And for those who aren't turning 71 or haven't turned 71 this year, look at your RRSPs as well based on your income this year. Maybe it's a little bit lower. Maybe we want to be thinking about some drawing down on some of those RRSP funds a little bit earlier, depending on what our retirement plans are. If we're in a lower tax bracket this year and we want to reduce the amount of mandatory withdrawals that would be required to be taken once we are in a RRIF.
Right, Nicole. The funny thing about deadlines is there's usually consequences for missing them and getting beyond them. Something specific on the tax front ... the interest rate on overdue taxes as of January 1st, I understand it's going up.
It is going up. So as with a lot of rates when it comes to taxes, it's attached to the to the interest rates and as they climb so too does the interest that the government wants. And when we think about late filing, the the intention is to want to discourage people from doing that. We want people to be filing their taxes. And as recently as second quarter 2022, that overdue amount was 5%. Some people sort of thought of that as maybe a low cost way of borrowing and putting their money elsewhere. It is going up to 10% as of January. So late filing, I would suggest it is not a great idea. This is in addition to the late filing penalty. So this is the amount on overdue taxes. File your returns. Get those in at least stop the penalty that you would have for non-filing. But we need to be mindful that any late payments on our outstanding taxes at 10% as of next year.
Nicole, we covered a lot of ground. You laid it out nicely and clearly. Still, there's a lot here. If someone feels uncomfortable, should they be talking to somebody?
Oh, absolutely. Work with your financial advisors, your investment advisors, your tax advisors. Make sure that they're aware of your personal circumstances and the goals that you are trying to achieve, and they can help you navigate all of these questions and figure out solutions that are best suited for you.