Tuesday, December 5, 2023

3 tax modifications it is advisable to handle earlier than the top of this yr

Jamie Golombek: Now’s the time to think about tax-loss promoting, a tax-free first house financial savings account and presents to charities

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Most of us solely take into consideration our taxes come tax season, which is often the 2 months main as much as the April 30 annual submitting deadline, but it surely’s actually the final two months of the calendar yr when taxpayers must be paying consideration.

In any case, there’s toddler can do as soon as the yr is over to retroactively reduce taxes. Right here are some things you could want to take into account implementing earlier than year-end which might be distinctive to 2023 tax planning.

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Tax-loss promoting

Now often is the opportune time to set off some tax losses provided that the actual property, communication providers and utilities sectors are down between 12 per cent and 15 per cent yr thus far in 2023.

Tax-loss promoting entails promoting investments in your non-registered accounts which have accrued losses to offset capital features realized elsewhere in your portfolio. Any internet capital losses that can’t at present be used could both be carried again three years or carried ahead indefinitely to offset internet capital features in different years.

To ensure that your loss to be instantly obtainable for 2023 (or one of many prior three years), the settlement should happen in 2023. The commerce date have to be no later than Dec. 27 to finish settlement by year-end since Dec. 30 and 31 fall on a weekend in 2023 and there’s a two-day settlement interval for inventory trades.

In the event you bought securities in a overseas forex, resembling in U.S. {dollars}, the acquire or loss could also be bigger or smaller than you anticipated as soon as you’re taking the overseas trade part under consideration, particularly if you happen to bought these securities some time in the past.

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For instance, a decade in the past, the U.S. greenback was buying and selling for round $1.05, whereas right now it’s hovering round $1.39. A safety bought 10 years in the past in U.S. {dollars} may subsequently have a big embedded forex acquire, which may greater than offset what at first look may seem like an accrued loss.

First house financial savings accounts

This week, the federal government introduced that greater than 250,000 Canadians have already opened a tax-free first house financial savings account (FHSA) to avoid wasting for a down fee on their first house. In the event you’re a first-time homebuyer (no house within the present yr or prior 4 calendar years) who’s a resident of Canada and no less than 18 years of age, the FHSA means that you can save on a tax-free foundation in the direction of the acquisition of a house. That is the primary yr the FHSA has been obtainable.

You’ll be able to contribute as much as $8,000 per yr (as much as a lifetime restrict of $40,000) in the direction of saving in your first down fee. You’ll be able to declare a tax deduction for contributions you make by Dec. 31 in your 2023 tax return, otherwise you may select to say it in any future yr when maybe you’re in a better tax bracket. Be aware, nevertheless, that not like RRSPs, contributions you make throughout the first 60 days of 2024 can’t be deducted in your 2023 return.

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Withdrawals to buy a qualifying house, together with withdrawals of any funding earnings or progress earned within the account, are non-taxable, identical to they’re with a tax-free financial savings account (TFSA). If you find yourself not having the ability to use the FHSA to purchase a primary house, you may have the choice (till age 71 or 15 years after opening an FHSA, whichever comes first) of transferring funds from an FHSA to your RRSP or registered retirement earnings fund (RRIF) on a tax-free foundation. These transfers received’t have an effect on your RRSP contribution room. Funds in your RRSP or RRIF might be taxed upon final withdrawal.

To acquire a 2023 tax return deduction, FHSA contributions have to be made by Dec. 31, 2023. Even if you happen to can’t put in the entire $8,000 this yr, it’s nonetheless clever to open an account in 2023 with some degree of contribution, as any unused room will carry ahead to subsequent yr. However if you happen to don’t open an account this yr, FHSA room doesn’t begin to accumulate.

As of Nov. 1, FHSAs can be found at greater than 20 monetary establishments, and extra establishments are working towards a launch quickly.

Different Minimal Tax

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You could wish to get forward of proposed modifications to the Different Minimal Tax (AMT) system which might be set to take impact Jan. 1, 2024.

The AMT imposes a minimal degree of tax on taxpayers who declare sure tax deductions, exemptions or credit to scale back the tax that they owe to very low ranges. If the quantity of tax calculated underneath the AMT system is greater than the quantity of tax owing underneath the common tax system, the distinction owing is payable as AMT for the yr.

The 2024 AMT modifications embrace elevating the AMT price, rising the AMT exemption and broadening the AMT base by limiting sure exemptions, deductions and credit that scale back taxes.

Your AMT could also be larger in 2024 (in comparison with 2023) in case your taxable earnings is greater than about $173,000, and you’ve got earnings taxed at decrease charges than odd earnings, or deductions or credit that scale back taxes payable. These embrace capital features, worker inventory choices, Canadian dividends, unused losses carried ahead from prior years, sure deductions resembling curiosity expense, and non-refundable tax credit.

Because of this, if you happen to suppose you could be affected in 2024, you could want to take into account triggering a acquire or exercising worker inventory choices in 2023 earlier than the brand new AMT rule comes into impact.

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Lastly, if you happen to plan to make important charitable donations, two proposed modifications for 2024 AMT calculations may have an effect on you. Solely 50 per cent of the donation tax credit score might be allowed when calculating AMT (100 per cent is at present allowed).

Additionally, if you happen to make in-kind donations of publicly listed securities, or a donation is made on the train of a professional worker inventory possibility of publicly listed securities, 30 per cent of capital features on these securities could be added to earnings when calculating AMT (versus zero in 2023).

Associated Tales

You’ll want to seek the advice of a tax adviser within the subsequent couple of months to gauge whether or not the AMT may have an effect on you in 2024 and, in that case, take into account making a charitable reward in 2023 quite than 2024. On this regard, a donor-advised fund provided by means of some public foundations permits a donor to get a donation receipt right now, after which direct the funds to any registered charity for years to come back.

Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Property Planning with CIBC Personal Wealth in Toronto. Jamie.Golombek@cibc.com.

Editor’s observe: Jamie Golombek has been named a 2023 CPA Ontario Fellow, which is the very best distinction that may be bestowed upon a CPA. Congrats, Jamie.

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