With December upon us, here are several tax considerations and deadlines to remember for the 2023 tax year. Please note that December 31 is a Sunday this year. Plan your contributions and withdrawals accordingly.
Payments, Expenses and Other Transactions
1. Tax-Loss Selling – Selling non-registered investments with unrealized capital losses before year-end can offset capital gains realized in 2023. While this strategy may offer tax advantages, ensure that it also makes sense from an investment perspective. Trades must be placed on Canadian securities exchanges no later than December 27 to settle in time to report in the 2023 tax year. Foreign exchanges may have different deadlines. Losses unused in 2023 can be carried back to offset capital gains from the three preceding years (2022, 2021 and 2020) or carried forward to claim in any future year. Beware of “superficial loss” rules which deny a capital loss if you or your spouse buys an identical investment within 30 days before or after the settlement date, including in an RRSP, RRIF, TFSA or a company controlled by you or your spouse. Denied losses generally increase the adjusted cost base of the purchased identical investment, which may reduce future capital gains.
2. Charitable Donations – The first $200 of annual donations are eligible for a 15% federal tax credit plus the applicable provincial credit (5.06% in BC). Donations in excess of $200 are eligible for higher combined credits (up to 53.5% in BC). Donating eligible securities “in kind” in 2023 results in no taxable capital gain while receiving a donation tax credit for the market value of the donated securities.1
3. Carrying Charges – Investment-related fees, charges and interest paid on money borrowed for most investment purposes (other than in registered accounts) must be paid by December 31 to be deductible in 2023.
4. Splitting Income – The deadline to pay 2023 interest on spousal loans is January 30, 2024. Contrast this with pension income splitting rules, which allow you to allocate to your spouse or partner up to 50% of your eligible pension income by filing an election with your 2023 income tax returns. Eligible pension income includes your RRIF and LIF payments if you are at least age 65 at the end of 2023, and life annuity payments from a registered pension plan at any age.
5. New Trust Reporting for Tax Years Ending December 31, 2023, onward – Federal tax legislation requires certain trusts to file a T3 Trust Income Tax and Information Return within 90 days of the trust’s year-end. A wider range of trusts will now be required to file a T3 return for taxation years ending on or after December 31, 2023, and additional reporting with respect to the trustees, beneficiaries, settlors and anyone who can exert influence over the trustees’ decisions (such as a protector) may also apply. For more information, please ask your Odlum Brown Investment Advisor or Portfolio Manager for a copy of our article, “New Trust Reporting Requirements,” contact your tax professional or visit the CRA website.2
Contributions to Registered Plans
6. Registered Retirement Savings Plans (RRSPs) – You can use your unused RRSP contribution room to contribute to your own RRSP until December 31 of the year in which you turn 71, or to a spousal RRSP until December 31 of the year in which your spouse or common-law partner turns 71. Contributing to a spousal RRSP by December 2023 reduces the income attribution period by one calendar year compared to a contribution made in, say, January 2024. If you have a considerable amount of contribution room, consider maximizing your contributions now, but deducting your contributions over multiple years, depending on your current and expected future taxable income and credits.
7. Tax-Free Savings Accounts (TFSAs) – There is no deadline for TFSA contributions. Unused contribution room is carried forward to be used in future years. If you plan to withdraw from TFSAs in the near future, consider making the withdrawal in December 2023, rather than in 2024. This can enable earlier re-contributions (as early as January 1, 2024), since TFSA withdrawals increase your contribution room the following calendar year.
8. Registered Education Savings Plans (RESPs) – If an RESP beneficiary is enrolled in a qualifying post-secondary educational program, December 31 is the deadline to withdraw a taxable Educational Assistance Payment (EAP) for 2023, taxable to the student. If your child turned 15 in 2023, December 31 is also the last chance to ensure future CESG eligibility at ages 16 and 17 (in 2024 and 2025), by satisfying minimum RESP contributions.
9. Registered Disability Savings Plans (RDSPs) – RDSPs are tax-deferred long-term savings plans for an individual who is eligible for the disability tax credit. Lifetime contributions of up to $200,000 can be made by anyone until the beneficiary turns 59 and can create access to federal government assistance in the form of Canada Disability Savings Grants (CDSGs) and Bonds (CDSBs) for up to 10 previous calendar years, until December 31 of the year in which the beneficiary turns 49. RDSP contributions are not tax-deductible.
10. First Home Savings Account (FHSAs) – FHSAs are a new account designed to help individuals between the age of majority (19 in BC) and 71 save for their first home. FHSA holders can make tax-deductible contributions, earn investment income and make qualifying withdrawals tax-free. To earn contribution room for 2023, you must open an FHSA by December 31.
Odlum Brown Financial Services Limited is a wholly owned subsidiary of Odlum Brown Limited offering life insurance products, retirement, estate and financial planning exclusively to Odlum Brown clients. The information contained herein is for general information purposes only and is not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard. Many factors unknown to Odlum Brown Limited may affect the applicability of any matter discussed herein to your particular circumstances. You should consult directly with your professional advisor before acting on any matter discussed herein. Individual situations may vary.
1 Consult with your tax advisor to determine timing and suitability with respect to donations of publicly traded securities in light of the proposed changes to the Alternative Minimum Tax in 2024. More information is available at odlumbrown.com/financial-planning/amt.
2 canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2023/new-reporting-requirements-trusts-as-december-31-2023.html