2023 year-end tax planning checklist

Effective wealth planning takes place throughout the year. However, you can take some key steps before the end of the year and early in the new year from a tax planning perspective that can make a positive impact on your overall finances.

While the following list is not exhaustive, here are some time-sensitive items to look at now for 2023 as well as proactive items for 2024.

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Before December 15, 2023

▢ Pay quarterly tax instalments for 2023, if required.

If your 2022 tax return showed net tax owing (total tax liability less tax withheld at source) of over $3,000 ($1,800 for Quebec residents), you may have received a notification from the Canada Revenue Agency (CRA) and Revenu Québec for Quebec residents requiring you to pay quarterly tax instalments for 2023.

If you have not paid these instalments and expect your net tax owing in 2023 to exceed $3,000 ($1,800 for Quebec residents), you should make a payment as soon as possible. This will reduce or avoid instalment interest and penalties from being charged.

Note: Interest on instalments and overdue payments compounds daily at the CRA’s “prescribed rate” plus an additional 4%. Amounts owing to Revenu Québec are also subject to interest charges. With the drastic rise in interest rates, it is especially important to ensure outstanding instalments and taxes are paid.

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Before December 27, 2023

▢ Put tax-loss selling strategies to work:

1. Calculate the capital gains you have realized for 2023.
2. Identify and sell investments that are in loss positions.
   Trades must be entered on or before this date to be settled by year-end.
3. Net your capital losses against capital gains on your 2023 tax return.

Note: Be sure to factor in the impact of foreign exchange if investments are not denominated in Canadian dollars.

In addition, any tax-loss selling strategies you use should account for the “superficial loss” rules, which will deny capital losses if identical investments are repurchased within a specified time period. Please refer to our “Tax-Loss Selling” and “Advanced Tax-Loss Selling” education articles for more details.

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Before December 31, 2023

▢ Tax-Free Savings Account (TFSA):

• Consider making a contribution to your TFSA. The TFSA dollar limit for 2023 is $6,500. Keep in mind that TFSA contribution room accumulates if not used, so you may be able to top up your TFSA if prior contributions were missed. Check with the CRA to verify your unused contribution room.
• If you plan to withdraw from your TFSA soon, consider making the withdrawal by year-end rather than waiting until early 2024. This is because a withdrawal in 2023 will be added back to your TFSA contribution room at the beginning of 2024.

▢ Registered Retirement Savings Plan (RRSP) and Registered Retirement Income Fund (RRIF):

• Consider withdrawing funds from your RRSP or RRIF by year-end if you are in a lower tax bracket for 2023, or to take advantage of the $2,000 pension tax credit for RRIF income received by individuals that are at least age 65.

Note: If you are the owner of a spousal RRSP, you should be mindful of “income attribution” rules that may apply to withdrawals you make from the account, if your spouse had made contributions to the account during the year or the two prior calendar years.

• If you plan to withdraw from your RRSP under the Home Buyers’ Plan (HBP) or Lifelong Learning Plan (LLP) soon, consider making the withdrawal in early 2024 rather than by year-end to maximize the repayment period.
• If you are age 71 this year, you must convert your RRSP to a RRIF by December 31 and begin taking minimum withdrawals next year. Consider the following:
  • Using your younger spouse’s age for minimum payment calculations.
  • Making a final RRSP contribution by year-end, if you have earned income in 2023 and do not have a younger spouse that you can make RRSP contributions for in the future. A final contribution can be made to account for new RRSP room that will accrue on January 1, 2024 but will not be available to you as you can no longer own RRSPs.
    
    However, note that if the final contribution exceeds your 2023 RRSP contribution limit, there will be a monthly 1% penalty tax payable on the overcontribution, before new room accrues on January 1, 2024.

▢ Tax-Free First Home Savings Account (FHSA):

• If you are a “qualifying individual,” consider opening an FHSA by year-end (if available) and making a contribution. You can contribute up to $8,000 each year, with a lifetime limit of $40,000.
• Even if you cannot make a contribution, you should still consider opening an FHSA by year-end (if available). This is because you are allowed to carry forward up to $8,000 of unused contribution room, but only once you have opened an FHSA. Opening an FHSA by year-end would allow you to contribute up to $16,000 in 2024, while opening an FHSA in 2024 would only allow you to contribute $8,000 in 2024. However, be aware that your maximum participation period for the FHSA is 15 years, so opening an account by year-end means that you would have to close it by December 31, 2038.

Note: Please refer to our “FHSA” education article for more details.

▢ Registered Education Savings Plan (RESP) and Registered Disability Savings Plan (RDSP).

• Consider making contributions to an RESP and/or RDSP for the benefit of your family members. The federal government can provide grants and bonds to RESPs and RDSPs which are tied to contributions made.

▢ Consider making charitable donations.

• Donating certain property directly to charities, such as publicly listed securities, can increase your tax savings.

Note: Some charities may require additional time to accept and process donations during this time. You should plan accordingly.

Furthermore, proposed changes to the federal “alternative minimum tax” (AMT), intended to apply after 2023, could reduce the tax efficiency of making donations after 2023.

The proposals would limit the amount of donation tax credits that can be claimed by 50% and would require 30% of capital gains from the donation of publicly listed securities to be included in computing minimum tax (versus 0% under ordinary income tax rules).

You may wish to make larger donations by year-end to mitigate the impact of these proposed changes in future years, provided you have sufficient net income this year. Consult with your tax advisors on this matter.

▢ Pay expenses eligible for tax deductions or credits.

These include but are not limited to:

• Investment management fees
• Interest paid on borrowings used for investing
• Child care expenses
• Medical expenses
• Home office expenses

Note: Back in 2022, certain employees working from home were able to use a “temporary flat-rate method” to deduct home office expenses ($2 for each day worked from home, up to a maximum claim of $500). Be aware that this method is no longer available for 2023. Consult with your tax advisors to determine if you can claim home office expenses for 2023.

▢ Consider whether to intentionally recognize or delay taxable income this year.

If you anticipate your overall tax rate will be materially different between this year and next year, you may wish to intentionally recognize or delay items of income, deductions, and credits to take advantage of the anticipated tax rate differences.

Note: For example, proposed changes to the federal AMT (referred to earlier) would require 100% of most capital gains to be included in computing minimum tax (versus 50% under ordinary income tax rules) and would reduce the amount of most tax deductions and credits that can be claimed by 50%. These changes, if enacted, could increase your overall tax liabilities after 2023.

Therefore, you may wish to intentionally trigger additional income and capital gains this year (e.g., by withdrawing from your RRSP/RRIF, by selling investments) to mitigate the impact of these proposed changes in future years. This could also help with absorbing amounts from prior years that may be limited if they are claimed after 2023, such as capital loss carryovers and unused donation amounts. Consult with your tax advisors on this matter.

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Before January 30, 2024

▢ Pay the accrued interest on outstanding income-splitting loans.

Interest on such loans must be paid on or before this date to avoid the application of income attribution rules.

Note: If your income-splitting loan was entered into during 2023, accrued interest must be paid on or before this date, even if the loan has not been outstanding for a full 12 months.

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On or before February 29, 2024

▢ Make RRSP and/or spousal RRSP contributions.

A RRSP or a spousal RRSP contribution made on or before this date will be deductible on your 2023 tax return, subject to your RRSP contribution limit. The RRSP dollar limit for 2023 is $30,780. Check with the CRA to verify your RRSP contribution limit.

Note: If you turned age 71 in 2023, you would only have until December 31, 2023 to make a final contribution to your RRSP.

▢ Pay the minimum repayment amount on the outstanding balance of your HBP or LLP.

If the minimum repayment amount is not made on or before this date, it will be taxable on your 2023 tax return.

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Additional considerations for business owners

If you are an incorporated business owner, items to consider include but are not limited to:

• Salary and dividend mix for the year to yourself and family members. Salaries paid must be reasonable in the circumstances. Note that dividends paid to related persons from a private corporation may be caught under the “tax on split income” rules.

Note: Please refer to our “Shareholder Remuneration” and “Tax on Split Income” education articles for more details.

• Planning for investments held within your corporation, particularly if it or any other associated corporations benefit from the “small business deduction” on active business income. Tax rules phase out the small business deduction limit of an associated corporate group once its passive investment income from the prior year exceeds $50,000.
• Repaying shareholder loans owed to your corporation to avoid potential inclusion of a taxable benefit.
• Declaring capital dividends from your corporation’s “capital dividend account.” Capital dividends are favourable because they are tax-free distributions to Canadian-resident shareholders.

Note: If it makes sense to implement tax-loss selling in your corporate investment portfolio, you may want to review whether there is a positive balance in the capital dividend account and whether to declare a capital dividend prior to selling investments. This is because capital losses realized will immediately decrease the capital dividend account balance.

• Transferring the shares of your corporation to the next generation in a tax-efficient manner. Proposed changes to the “intergenerational business transfer” rules will require more stringent conditions to be satisfied in order for transfers of shares of certain corporations to the next generation to be taxed at capital gains rates (rather than higher dividend rates). The proposed changes are intended to apply to transfers of shares after 2023; therefore, you may wish to investigate whether it is possible and appropriate for you to initiate a transfer by year-end, under the current (and less stringent) conditions. The current rules, as well as the proposed changes, are complex and you should consult with your tax advisors on this matter.

Note: Please refer to our “2023 Federal Budget” report for more details.

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Additional considerations for trustees of trusts

• If you are a trustee of a trust that has taxable income during the year, we recommend that you work with your tax and legal advisors to determine whether this income will be retained in the trust or will be distributed to beneficiaries and the associated tax implications. Note that trustee decisions to distribute income to beneficiaries generally have to be made by year-end for this income to be taxed in the beneficiaries’ 2023 tax returns.
• If you are a trustee of a trust that has previously not been required to file trust income tax and information returns with the CRA and Revenu Québec, note that starting in 2023 such filings may be required on an annual basis. Trusts that may not have been required to file tax returns include those that only hold personal-use real estate or shares of private companies that have not made distributions, as well as bare trust arrangements. You should seek tax and legal advice on this matter. Note that the filing due date of the tax return for a trust with a December 31, 2023 year-end is March 30, 2024.

Note: Please refer to our “CRA New Trust Reporting Rules” education article for more details.

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Additional considerations for certain owners of Canadian residential real estate

If you are not a Canadian citizen or permanent resident (under immigration laws), or are not the direct legal owner of residential property in Canada, you may have obligations under the federal “Underused Housing Tax” (UHT). The UHT includes an annual declaration requirement to the CRA.

Note that the filing due date of the 2022 UHT return is October 31, 2023.

Note that the filing due date of the 2023 UHT return is April 30, 2024.

Note: Please refer to our “UHT” education article for more details.

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We recommend you discuss these strategies with your professional investment, tax, and legal advisors before implementation to make sure they fit within your overall wealth plan.