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Year End Tax Planning

Dec 14, 2023

As the end of the year quickly approaches, we recommend exploring potential tax planning opportunities for 2023. The following considerations are not personalized advice, and we always recommended consulting with your Financial Advisor or accountant before implementing any suggestions.


  • Owner-Manager Remuneration:

Optimize the mix of salaries and dividends for owner-managers to minimize taxes, considering factors like RRSP entitlements, CPP contributions, Tax on Split Income, and BC Employer Health Tax. Income splitting may be feasible if family members provide services.


  • Lifetime Capital Gains Exemption:

The lifetime capital gains exemption limit for 'qualified small business corporation' shares has increased to $971,190 in 2023, indexed to inflation for future years.


  • Personal Income Tax Rates:

The combined federal and provincial top marginal tax rate remains at 53.50%, applicable for income exceeding $240,000. Maximum marginal tax rates for eligible and regular dividends are 36.54% and 48.89% in 2023, respectively.


  • Principal Residence Rules:

The principal residence exemption reduces gains on property disposition. New anti-flipping rules apply from 2023, and late principal residence designations may incur penalties.


  • Trust Income Allocations:

Unallocated income in inter vivos trusts is taxed at the highest personal tax rate. Allocate trust income to beneficiaries by December 31, 2023.


  • Review Your Will:

Changes to the Income Tax Act in 2016 affect certain trusts. Consider tax implications and update your estate plan, especially if making charitable gifts through your will.


  • Low-Interest Loans:

Utilize the CRA's prescribed interest rate of 5% for income splitting with family members through related party loans. Payments must be made before January 30, 2024.


  • Capital Losses:

Offset capital gains by realizing capital losses before December 31, 2023. Be cautious of the superficial loss rule if repurchasing the same investments.


  • RRSP Contributions:

Contribute to RRSP by February 29, 2024, for a deduction on your 2023 tax return. Consider contribution limits, unused room, and special considerations for individuals turning 71 this year. (Individuals turning 71 this year have until December 31st to make a final contribution to their RRSP, potentially lowering their tax bill significantly).


Note: Another potential move for individuals turning 71 this year involves over-contributing to your RRSPs in December if you have earned income that will generate contribution room in 2024. This strategy, albeit with a small penalty tax of 1% of the overcontribution less $2,000, allows individuals to take advantage of the increased contribution limit in the following year.


  • Spousal RRSP:

Spousal RRSP contributions present another opportunity. You can contribute to your spouse (or common-law partner’s) RRSP until December 31st of the year they turn 71. By contributing to a spouse's RRSP before year end, individuals can start the clock on the attribution period sooner as it’s based on calendar years, potentially leading to tax benefits.


  • RRIF Withdrawal:

If you're 65 or older and not using the pension income credit, withdrawing $2,000 from a Registered Retirement Income Fund (RRIF) qualifies for the credit and can be used for income splitting purposes.


  • Delaying Certain Actions:

Delaying certain financial actions such as the realization of capital gains until January can defer taxes to the next year. For the Home Buyers' Plan or Lifelong Learning Plan, delaying withdrawals to the new year postpones your repayment schedule by a year. (If you're considering investments in mutual funds or segregated funds, be aware of potential year-end taxable distributions or allocations).


  • Allowable Business Investment Losses:

Realize Allowable Business Investment Losses by selling shares or debt of financially unviable private businesses before December 31, 2023.


  • Year-End Planning for Certain Investments:

Time purchases and sales of investments strategically to manage taxable income. Delay purchasing certain investments until January 2024 for tax efficiency.


  • Tax-Free Savings Account (TFSA):

Contribute up to $6,500 for 2023 and $7,000 for 2024. Unused contribution room carries forward, and TFSA offers flexibility and tax-free withdrawals.


  • First Home Savings Account (FHSA):

Open a First Home Savings Account (FHSA) to start accumulating contribution room. Since unlike TFSAs, contribution room does not automatically accrue and unlike RRSPs, contributions in the first 60 days of 2024 can not be used for 2023.


  • Registered Disability Savings Plan (RDSP):

Set up an RDSP for eligible individuals, providing tax benefits on contributions and tax-free growth within the plan.


  • Registered Education Savings Plan (RESP) Contributions:

Contribute to an RESP by December 31, 2023, to qualify for the Canada Education Savings Grant. Consider income limits and other eligibility criteria.


  • Defer a Bonus:

Discuss with your employer the possibility of deferring a 2023 bonus until January 2024 to defer tax payments.


  • Interest Deductibility:

Ensure loan interest deductions meet the criteria. Consider deductibility of life insurance premiums assigned as collateral for a loan.


  • Investment Counseling Fees:

Deductible for non-registered accounts. Fees for managing registered accounts are not deductible.


  • Review Your Personal Use of Employer-Provided Automobiles:

Consider the tax implications of personal use of company-owned vehicles, especially the standby charge.


  • Purchasing Business Assets:

Purchase business assets before year-end for early capital cost allowance claims and GST credit eligibility.


  • Moving Expenses:

Deductible if moving within Canada for employment or business reasons. Maintain a detailed log for CRA audit purposes.


  • Charitable Donations:

Make charitable donations before December 31, 2023, to qualify for tax credits. Consider donating appreciated securities for additional tax benefits.


  • Political Donations:

Qualify for tax credits by making political donations before December 31, 2023, adhering to federal and provincial limits.


  • Medical Expenses:

Ensure medical expenses are paid within any twelve-month period ending in 2023 to qualify for a tax credit.


  • Adoption Costs:

Claim a tax credit for adoption-related expenses, up to a maximum of $18,210 per child.


  • Child Care Expenses:

Deduct childcare expenses within specified limits, considering age, disability, and earned income of the claimant.


  • Canada Child Benefit:

Ensure timely filing of tax returns to receive the tax-free Canada Child Benefit, recalculated annually based on income.


  • Spousal Support and Maintenance:

Deductible for the payer and included in the income of the recipient. Exception for child support payments.


  • Home Accessibility Tax Credit:

Claim up to $20,000 in eligible expenditures per calendar year for qualifying individuals, enhancing home accessibility.


  • Eligible Educator School Supply Credit:

Teachers and early childhood educators can claim a refundable tax credit for eligible teaching supplies.


  • Students:

Utilize tax exemptions for scholarship income, claim tuition credits, and consider reporting foreign university tuition fees.


  • B.C. Volunteer Firefighters and Search and Rescue Volunteers Tax Credit:

Claim a credit for individuals providing volunteer service to fire departments or eligible search and rescue organizations.


  • File Tax Returns for All Family Members:

Ensure all family members file tax returns to accumulate RRSP contribution room and qualify for certain benefits.


  • Offshore Investments:

Comply with reporting requirements for specified foreign property and foreign affiliate holdings. U.S. citizens living in Canada must also meet U.S. tax obligations.


The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice in the context of your particular circumstances.

By Laura Chanin 11 Apr, 2024
This commentary is compliments of Manulife Investments - 2024 starts with a bang! Global markets stormed out of the gate in the first three months of 2024. The combination of a resilient consumer base and lower inflation levels created a positive backdrop for investors. The S&P 500 Index, the S&P/TSX Composite Index, and the MSCI World Index were up 10.2%, 5.8% and 8.4%, respectively, in Q1. The euphoria, however, didn't extend to the fixed-income space—Canadian and U.S. bonds (measured by the FTSE Canada Universe Bond Index and Bloomberg U.S. Aggregate Bond Index) were down 1.2% and 0.8%. In our view, equities are priced for the best case scenario, with markets expecting to avoid a recession, on the belief that we’ll see a gradual decline in inflation, and that central banks will soon start cutting interest rates. In such an environment, any headline surprises that state otherwise may create potentially choppy markets in the near term. How do stocks and bonds perform when the government begins to cut rates? Investors have been waiting in anticipation for the U.S. Federal Reserve (Fed) to start cutting interest rates. They believe that lower interest rates will help drive the markets even higher. That said, history suggests things may not be quite as simple. We looked at the previous nine easing cycles, dating back to 1970. In the first chart, we’ve indicated (in red) periods that we believe to mark the beginning of an easing cycle. These are easily identifiable in recent easing cycles; however, those in the early 1980s aren’t and require subjective interpretation.
By Kelsey Maxwell 11 Apr, 2024
Calling all high achievers! Maybe fun isn’t the first place your head goes to when thinking of high performance. We’re talking to you- the hard worker, the busy parent, the dedicated athlete, the responsible sibling. We’ve got compelling, scientific evidence proving how important it is for you to incorporate fun and play into your life! You’ll also find some practical suggestions for incorporating more fun into your daily routine. Research indicates that happy individuals tend to be healthier physically, have lower inflammatory markers, and may even have improved productivity at work. Happiness has also been linked to better mitochondrial health and is a key factor in sustainable high performance. A recent study on twins suggests that 35% to 50% of your happiness is genetically predetermined. That means there's still a significant portion of happiness that's within our control. Interestingly, humans typically aren’t the best at knowing exactly what makes them happy. Dr. Gillian Mandich, who studies the science of happiness, says that it’s not the big shiny moments that matter, but rather the small moments over time that determine how happy we are. It is recommended to dedicate at least two hours per day to fun. Engaging in playful activities, such as games or sports not only increases happiness, but it’s also important for your brain. A study found that juvenile rats that engaged in “rough and tumble” play had higher activation in certain areas of the brain compared with control rats. They also had greater brain-derived neurotrophic factor (BDNF) gene expression, suggesting that play is important for neurodevelopment. Humor is another way to sprinkle small bursts of joy throughout the day. Laugh therapy is currently being used to treat depression and anxiety, as well as stress-related disease. Research shows that laughter actually supresses cortisol, and boosts dopamine and serotonin hormone levels. Playfulness isn't just beneficial for personal wellbeing; it can also have positive effects in professional and practical settings. Play has been shown to reduce stress, increase productivity and job satisfaction, and improve overall work quality and team cohesion. Play can also serve as an effective coping mechanism for stress, allowing you to mobilize cognitive resources and build resilience in the face of challenges. Contrary to the belief that play is only for children, research demonstrates its importance for health and wellbeing across all age groups, adults being the most prone to high stress levels. Remember that striving for constant happiness can be counterproductive. Happiness is a result, not a pursuit. Accepting the ups and downs of life and focusing on creating joyful moments, when possible, can lead to a more sustainable sense of wellbeing. In summary, incorporating more fun, play, and happiness into our lives can lead to numerous benefits, including improved physical health, enhanced productivity, and greater overall wellbeing. It's essential to prioritize these elements and recognize their significance for both personal and professional fulfillment. If you’ve been all work, no play lately- this is your sign to get out there and have some FUN! Source: https://drgregwells.com/blog/your-brain-on-play-the-science-of-how-fun-can-fuel-wellbeing References: Dfarhud, D., M. Malmir, and M. Khanahmadi. “Happiness & health: The biological factors—systematic review article.” Iranian Journal of Public Health 43, no. 11 (November 2014): 1468–1477. Panagi, L., L. Poole, R.A. Hackett, and A. Steptoe. “Happiness and inflammatory responses to acute stress in people with type 2 diabetes.” Annals of Behavioral Medicine 53, no. 4 (March 20, 2019): 309–320. Salas-Vallina, A., M. Pozo-Hidalgo, and P.R. Gil-Monte. “Are happy workers more productive? The mediating role of service-skill use.” Frontiers in Psychology 11 (March 27, 2020): 456. Picard, M., A.A. Prather, E. Puterman, A. Cuillerier, M. Coccia, K. Aschbacher, Y. Burelle, and E.S. Epel. “A mitochondrial health index sensitive to mood and caregiving stress.” Biological Psychiatry 84, no. 1 (July 1, 2018): 9–17. Chick, G., C. Yarnal, and A. Purrington. “Play and mate preference: Testing the signal theory of adult playfulness.” American Journal of Play 4, no. 4 (2012): 407–440. Wallace, J. “Why it’s good for grown-ups to go play.” Health and Sci- ence. Washington Post (May 20, 2017). https://www.washingtonpost . com/national/health-science/why-its-good-for-grown-ups-to-go- play/2017/05/19/99810292-fd1f-11e6-8ebe-6e0dbe4f2bca_story.html. Magnuson, C.D., and L.A. Barnett. “The playful advantage: How playfulness enhances coping with stress.” Leisure Sciences 35, no. 2 (2013): 129–144. Neale, D. “A golden age of play for adults.” British Psychological Society (March 25, 2020). https://www.bps.org.uk/psychologist/gold- en-age-play-adults. Edwards, D. “Play and the feel good hormones.” Primal Play (June 23, 2022 ). https://www.primalplay.com/blog/play-and-the-feel-good- hormones. Guitard, P., F. Ferland, and É. Dutil. “Toward a better understand- ing of playfulness in adults.” OTJR: Occupation, Participation and Health 25, no. 1 (January 1, 2005): 9–22.
By Kelsey Maxwell 11 Apr, 2024
The Canadian dollar's recent decline to its lowest level in almost two years against the US dollar is primarily attributed to several factors, including worsening economic outlook, rising inflation concerns, and diverging monetary policies between the US Federal Reserve and the Bank of Canada.  Inflation Concerns: The persistently high inflation in the United States has raised expectations of aggressive interest rate hikes by the Federal Reserve. This anticipation of higher interest rates in the US has led to a flight to safety, with investors favoring the US dollar over other currencies, including the Canadian dollar. Diverging Monetary Policies: The Federal Reserve is expected to raise its benchmark interest rate significantly, possibly reaching as high as 4 or 5 percent, whereas the Bank of Canada may not be able to match such aggressive rate hikes due to concerns about the impact on the housing market and consumer spending. This disparity in monetary policy paths between the two central banks is widening the gap between the US dollar and the Canadian dollar. Commodity Prices: The Canadian dollar is also influenced by commodity prices, particularly oil, as Canada is a major oil exporter. The recent decline in oil prices, coupled with softness in other commodity prices, has further weighed on the Canadian dollar's performance. Market Sentiment: Market sentiment plays a crucial role in currency movements. The prevailing perception among investors is that the US dollar is a safer haven during times of uncertainty, leading to increased demand for the US dollar and consequent weakness in the Canadian dollar. Expectations for Future Performance: Some analysts predict further depreciation of the Canadian dollar against the US dollar in the near term, with projections of the loonie falling below 73 cents by the end of the year. This outlook reflects concerns about the Canadian economy's relative weakness compared to the US economy. Overall, the combination of inflation worries, diverging monetary policies, commodity price movements, and market sentiment has contributed to the recent depreciation of the Canadian dollar against the US dollar, with implications for Canada's economic outlook and trade competitiveness. Source: https://www.cbc.ca/news/business/canadian-dollar-1.6585291
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If you’re delving into the intricacies of managing retirement savings, particularly the transition from RRSPs to RRIFs, read on. This transition is crucial to understand, especially considering the tax implications and mandatory withdrawal requirements associated with RRIFs. Missing the deadline to convert your RRSP to a RRIF can have significant tax consequences, as the entire value of your RRSP becomes taxable income, potentially pushing you into a higher tax bracket. This underscores the importance of staying vigilant about conversion deadlines. You can convert anytime but the last year to convert is the year you turn 71. While RRSPs and RRIFs share similarities, such as holding the same investments and being fully taxable upon withdrawal, there are key differences to note, such as the lack of contribution capability in RRIFs and the mandated minimum withdrawals. Managing RRIF withdrawals is a strategic endeavor, involving considerations like tax implications, OAS claw backs, and income splitting with a spouse. Additionally, converting a RRIF back to an RRSP is possible under certain circumstances, offering flexibility in retirement planning. Understanding the mechanics of RRIF conversion, the timing of withdrawals, and the options for structuring payments is essential for optimizing retirement income and minimizing tax liabilities. Navigating the transition from RRSPs to RRIFs requires careful planning and consideration of various factors to ensure financial stability and tax efficiency in retirement. Reach out to us anytime for more information or clarity! Source: How to cope with the RRSP-to-RRIF deadline in your early 70s - MoneySense How to cope with the RRSP-to-RRIF deadline in your early 70s - MoneySense
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