Tax-loss selling
Tax-loss selling involves selling investments in non-registered accounts with accrued losses at year end to offset capital gains realized elsewhere in your portfolio. Any net capital losses that cannot be used currently may either be carried back three years or carried forward indefinitely to offset net capital gains in other years. In order for your loss to be immediately available for 2023 (or one of the prior three years), the settlement must take place before December 31, 2023.
Superficial losses
If you plan to repurchase a security you sold at a loss, beware of the “superficial loss” rules that apply when you sell property for a loss and buy it back within 30 days before or after the sale date. The rules apply if property is repurchased within 30 days and is still held on the 30th day by you or an “affiliated person”, including your spouse or partner, a corporation controlled by you or your spouse or partner, or a trust of which you or your spouse or partner are a majority beneficiary (such as your RRSP or TFSA). Under the rules, your capital loss will be denied and added to the adjusted cost base (tax cost) of the repurchased security. That means any benefit of the capital loss could only be obtained when the repurchased security is ultimately sold.
Make RRSP Contributions
Although you have until February 29, 2024 to make RRSP contributions for the 2023 tax year, contributions made as early as possible will maximize tax-deferred growth. Your 2023 RRSP deduction is limited to 18% of income earned in 2022, to a maximum of $30,780, less any pension adjustment plus any previous unused RRSP contribution room and any pension adjustment reversal.
Delay RRSP withdrawals under the HBP or LLP
You can withdraw funds from an RRSP without immediate tax under the Home Buyer’s Plan (up to $35,000 for first time home buyers) or the Lifelong Learning Plan (up to $20,000 for post-secondary education). With each plan, you must repay the funds in future annual instalments, based on the year in which funds were withdrawn. If you are contemplating withdrawing RRSP funds under one of these plans, you can delay repayment by one year if you withdraw funds early in 2024, rather than late in 2023.
Make TFSA Contributions
The Tax-Free Savings Account (TFSA) contribution limit has increased to $7,000 in 2024 from $6,500 in 2023 and there is no deadline for making a TFSA contribution. If you have been at least 18 years old and resident in Canada since 2009, you can contribute up to $95,000 in 2024 if you haven’t previously contributed to a TFSA.
Take TFSA Withdrawals
If you withdraw funds from a TFSA, an equivalent amount of TFSA contribution room will be reinstated in the following calendar year, assuming the withdrawal was not made to correct an over-contribution. Be careful, however, because if you withdraw funds from a TFSA and then re-contribute in the same year without having the necessary contribution room, overcontribution penalties can result. If you wish to transfer funds or securities from one TFSA to another, you should do so by way of a direct transfer, rather than a withdrawal and recontribution, to avoid an overcontribution problem. If you are planning a TFSA withdrawal in early 2024, consider withdrawing the funds by December 31, 2023, so you would not have to wait until 2025 to re-contribute that amount.
Pay Investment Expenses
Certain expenses must be paid by year end to claim a tax deduction or credit in 2023. This includes investment-related expenses, such as interest paid on money borrowed for investing and investment counseling fees, for non-registered accounts.
Charitable Giving
Both the federal and provincial governments offer donations tax credits that, in combination, can result in tax savings of up to 55% of the value of your gift in 2023, depending on your province or territory of residence. With total cash donations up to $200 in a year, the federal donation credit is 15% of the donation amount. For total donations exceeding $200 in a year, the federal donation credit jumps to 29% (33% to the extent taxable income exceeds $221,708) of the donation amount. Provincial donation credits are also available and the total credit may be up to 55% once total annual donations exceed the $200 in a calendar year. December 31 is the last day to make a donation and get a tax receipt for 2022. Keep in mind that many charities offer online, internet donations where an electronic tax receipt is generated and emailed to you instantly.
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