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Year-End Personal Tax Tips: Getting Your Finances in Order

As 2024 approaches, it's crucial to assess your finances and improve your tax position due to Canada's economic challenges, including higher mortgage interest rates and ongoing uncertainty. Fastway Taxes and Payroll has compiled some essential tips that align with our personal tax services in Brampton.  To achieve financial goals tax-effectively, consider available opportunities and planning choices before the end of the year. Additionally, consider upcoming changes, such as trust reporting requirements for taxation years ending after December 30, 2023, and proposed alternative minimum tax (AMT) changes for taxation years beginning after 2023.

Selling Investments at a Loss for Tax Purposes

Selling investments with accrued losses before year-end can offset capital gains realized in the past three years. Accrued losses occur when investments have a fair market value less than their adjusted cost base. The last trading day to realize losses for Canadian and U.S. securities is December 27, 2023. Applying the current year's capital loss against gains can reduce capital gains in the past three years or any future year. Avoid repurchasing identical securities within 30 days.

Delaying Reporting Of Capital Gains for Tax Reasons

To lower your tax bill for 2023 and 2024, consider reviewing your marginal income tax rate and deferring capital gains realization until January 2024 or later. This strategy offers a lower tax rate next year and a year-long tax payment deferral. Offsetting capital gains with previous years' losses can further reduce tax obligations. Consult your investment advisor before implementing this strategy.

Contributions - Monetary and Non-Monetary

Donating to registered charities can reduce income taxes, with a 29% federal donation tax credit available for donations over $200. Pooling contributions with partners and in-kind securities can enhance tax efficiency. However, discussing these with investment and tax advisors before the December 31 deadline can be challenging.

First Home Savings Account (FHSA)

Canadian residents, at least 18 years old, and first-time home buyers can contribute to an FHSA before year-end, allowing up to $8,000 annually and a lifetime contribution limit of $40,000. FHSA contributions are tax-deductible, but withdrawals for first homes are non-taxable. Contributions made within 60 days of 2024 cannot be deducted against 2023 income.

TFSA Contributions and Withdrawal

Canadian residents aged 18 and older can contribute to a TFSA, which is tax-free and has an annual maximum contribution limit of $6,500 in 2023. The accumulated contribution limit since 2009 is currently $88,000. TFSA withdrawals can be made tax-free and re-contributed in the following year unless there is unused contribution room. Consider making a TFSA withdrawal in 2023 for future tax benefits.

Contributions to your RRSP

RRSP contributions help manage tax rates and liabilities by deductible against income up to the contribution limit. The maximum limit in 2023 is $30,780. Contributions must be made by February 29, 2024, and un-deducted contributions can be carried forward. Using a partner's spousal RRSP allows income splitting, with higher income contributing to lower income's RRSP. However, withdrawals are taxed in the lower-income partner's hands.

Convert RRIF for Pension Income Tax Credit

If you're 65-71 and withdrawing from your RRSP, consider converting a portion to an RRIF to take advantage of the non-refundable Federal pension tax credit. This credit applies to the first $2,000 of eligible pension income, including annuity and RRIF payments.

Contributions to RESP

New parents or grandparents should set up an RESP before December 31 to save early for their grandchild's post-secondary education. RESP contributions are tax-deferred and can yield non-to-low-taxed education savings. The Canada Education Savings Grant (CESG) is available for 20% of the first $2,500 in contributions per year, up to a lifetime maximum of $7,200 per child.

Wrap Up

This article emphasizes the importance of year-end tax planning considerations and deadlines, emphasizing that each individual's situation is unique, and it is recommended to consult with a tax advisor for further discussion and strategy implementation.

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