Personal Tax Planning
Registered Retirement Savings Plan ("RRSP")
Review your RRSP contributions for 2023. To maximize your 2023 RRSP deduction you will need to determine how much you should contribute before the February 29, 2024 deadline.
If you don't know your 2023 contribution limit, talk to your Chartered Professional Accountant or call Canada Revenue Agency's (CRA) help line (1-800-959-8281). CRA has an online service called My Account for checking your RRSP limit, installments made in the year and other items. To use this service click on the My Account link. Your 2023 contribution limit should also be on your 2022 Notice of Assessment.
The earlier in the year the contributions are made, the higher the compound growth in your RRSP will be and that means more investment income is sheltered within the RRSP. The 2023 maximum RRSP contribution is $30,780.
First Time Home Savings Account ("FHSA")
The 2023 budget introduced the FHSA which allows certain individuals to contribute up to $8,000 per year to the account, up to a lifetime maximum of $40,000. Contributions are tax deductible like an RRSP and income earned is not subject to tax. If a withdrawal is made for a qualifying home purchase, the proceeds are non-taxable. However, the proceeds are taxable if the withdrawal is made for a non-qualifying purpose.
To qualify for the FHSA, the individual must be resident in Canada and at least 18 years of age and not have lived in a home that they owned at any time in the year the account is opened or the 4 preceding calendar years.
T1 Receipts
Set up a file or an envelope to ensure you have all your receipts from the dentist, optometrist, pharmacist, charitable donations, political contributions, tuition fees and child care expenses. Although some may be mailed to you at the end of the year, you have likely accumulated many receipts throughout the past months. Keeping all of these together in one place avoids losing a deduction or claim and makes gathering together the information for your return in March or April much simpler. Where appropriate, we recommend requesting summaries of medical expenses paid during the year to ensure all amounts are included.
Losses
Have you remembered to take advantage of losses that may have been realized in previous years? Although non-capital losses are usually remembered, many times individuals lose track of net capital losses of earlier years. If you are unsure of whether you may have net capital losses available, contact your Chartered Professional Accountant or CRA.
Employees
Have you captured all employment expenses? Now may be the time to search for those gas, repair, registration, insurance premium, entertainment and promotion receipts. Make sure you log all kilometres driven for business purposes. Having records of the actual mileage will also be helpful in determining the percentage of automobile expenditures you should deduct.
Business-related entertainment expenses are limited to a 50% deduction but reasonable amounts for gifts, such as flowers and other thank-you items, are fully deductible.
Company Vehicle
The standby charge and operating benefit reflect the benefit of having a company-owned vehicle available for personal use and having the company pay for various operating costs. The calculation of this benefit depends on the amount of business vs. personal use of the vehicle and other factors. If you are unsure how to calculate this benefit, contact your Chartered Professional Accountant or obtain CRA's Guide to Taxable Benefits.
In order to prove your business and personal driving, remember to track your kilometers in a vehicle log book or daily diary.
BC Renters Tax Credit
Effective January 1, 2023 households with adjusted family net income of up to $60,000 that rent and occupy a living accommodation in BC for at least 6 months in a calendar year can claim the maximum refundable tax credit of $400 per year. The refundable credit is reduced when adjustment family net income is over $60,000 and is fully phased out when adjustment family net income exceeds $80,000. These thresholds will be indexed with inflation.
Registered Education Savings Plan ("RESP")
An RESP is a type of trust registered with CRA through which you can save for your child's (or grandchild's) education. Although contributions to the plan are not tax-deductible, income accumulates within the plan on a pre-tax basis.
When the funds are used by your child, the income portion is considered the child's income and is taxed at his or her lower rate. To further enhance the attractiveness of an RESP the government introduced a plan to partially match contributions, called the Canada Savings Education Grant, equal to 20% of the first $2,000 in annual contributions for children under the age of 18.
See us for the updated rules on the timing of payment and eligibility for government funding. If the child does not pursue education or training, the grant must be repaid to the government.
Multi-Generational Home Renovation Tax credit
A new tax credit is available which provides a 15% credit on eligible renovation expenses up to $50,000. The refundable credit applies to eligible expenses used to create a secondary dwelling unit for a senior or a person with a disability to live in with a qualifying relation.
This new tax credit will apply to the 2023 and subsequent taxation years for work performed and paid for and goods acquired on or after January 1, 2023.
Income Splitting
Consider options for income splitting with your spouse or children. Simple alternatives include investing Child Tax Benefits in your children's names or paying spouses or children reasonable salaries for services performed in your business.
More complicated alternatives involve transferring certain assets to children and transferring or lending funds to other family members. Care needs to be taken in these areas to avoid or minimize the affects of the attribution rules.
Talk to your Chartered Professional Accountant before proceeding with any income splitting techniques about which you are not sure of the tax effects. Since in the 2007 year, certain pension income is eligible to be split with your spouse. See us for details on the types and amounts of pension eligible for this treatment.
Investments
Are your family's investments, bank accounts, bonds and term deposits registered appropriately? If your spouse has interest-earning bonds, term deposits or savings accounts, ensure that the interest is accrued to the appropriate taxpayer.
Monitor your stock investments. Capital gains and losses are only reported upon the sale or deemed sale. Thus, rather than selling winners late in the year, consider selling on January 2 to defer the gain. If the sale will result in a capital loss that can be applied against gains made during the year or in the three preceding years, consider selling before the year end. But remember, the losses may be denied if you or your spouse acquire similar shares within 30 days before or after the sale.
Attempt to rearrange investments to repay debts on which the interest is not deductible or to make the interest tax deductible. Many personal debts must be paid with after-tax dollars and because the interest expense is not tax deductible, the cost of the loan is more expensive. It pays to reduce these debts as quickly as possible.
Consider taking advantage of the government's Tax Free Savings Account beginning in 2009. This allows eligible individuals to transfer up to $5,000 per year into a government registered account (Indexed to $5,500 for 2013 and 2014). The 2015 budget increased the TFSA limit to $10,000 for the 2015 year. This was then reduced back down to $5,500 by the Liberal government for 2016 through 2018. For 2019 through 2022, the TFSA limit has increased to $6,000. Beginning in 2024, the annual contribution limit was increased to $7,000. The income on this account is not taxable and withdrawals from the account are also not taxable. Speak to your investment advisor to determine which investments are right for you.
Home Office
With more employees working from home than ever before, you may qualify for a home office expense deduction. This process requires tracking certain expenses for the home and allocating them on a square foot basis against your employment income. A T2200 - Declaration of Conditions of Employment signed by your employer will be required in order to be able to deduct expenses.
Instalments
Review the amount of your quarterly instalments. Often incomes fluctuate from year to year. If your income tax for 2023 will be lower than 2022's actual, you can adjust your instalment payments. Adjusting the instalment means that Canada Revenue Agency won't have your money on an interest-free basis until it is refunded in the spring of 2024.
Alternatively, if your income for 2023 will be the same or more than 2022 you should make the required instalment by March 2024. As mentioned above, you can log on to My Account on the CRA web page or call them to determine the amount of the instalments you have made for 2023. You can find more information on their website.
Have questions?
Our team of experts is here to assist you with investments, taxes, retirement, and more. Call or email us for hassle-free service. Trust us to provide personalized financial expertise.