3 tax changes you need to take care of before the end of this year

Jamie Golombek: Now’s the time to contemplate tax-loss promoting, a tax-free first dwelling 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, nevertheless it’s actually the final two months of the calendar yr when taxpayers needs to be paying consideration.

In any case, there’s infant can do as soon as the yr is over to retroactively reduce taxes. Right here are some things it’s possible you’ll 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 so far in 2023.

Tax-loss promoting entails promoting investments in your non-registered accounts which have accrued losses to offset capital positive aspects realized elsewhere in your portfolio. Any web capital losses that can’t at the moment be used might both be carried again three years or carried ahead indefinitely to offset web capital positive aspects in different years.

To ensure that your loss to be instantly accessible 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.

When you bought securities in a international forex, equivalent to in U.S. {dollars}, the acquire or loss could also be bigger or smaller than you anticipated as soon as you’re taking the international trade part into consideration, particularly for those who 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 this moment it’s hovering round $1.39. A safety bought 10 years in the past in U.S. {dollars} may due to this fact have a major embedded forex acquire, which may greater than offset what at first look would possibly look like an accrued loss.

First dwelling financial savings accounts

This week, the federal government introduced that greater than 250,000 Canadians have already opened a tax-free first dwelling financial savings account (FHSA) to save lots of for a down fee on their first dwelling. When you’re a first-time homebuyer (no dwelling within the present yr or prior 4 calendar years) who’s a resident of Canada and a minimum of 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 accessible.

You may 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 may declare a tax deduction for contributions you make by Dec. 31 in your 2023 tax return, otherwise you would possibly select to say it in any future yr when maybe you might be in a better tax bracket. Be aware, nevertheless, that in contrast to RRSPs, contributions you make inside the first 60 days of 2024 can’t be deducted in your 2023 return.

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Withdrawals to buy a qualifying dwelling, together with withdrawals of any funding revenue or development earned within the account, are non-taxable, identical to they’re with a tax-free financial savings account (TFSA). If you find yourself not with the ability to use the FHSA to purchase a primary dwelling, you could 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 revenue 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 for those who can’t put in the entire $8,000 this yr, it’s nonetheless smart to open an account in 2023 with some degree of contribution, as any unused room will carry ahead to subsequent yr. However for those who 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.

Various Minimal Tax

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You might need to get forward of proposed modifications to the Various 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 cut back taxes.

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

Consequently, for those who suppose it’s possible you’ll be affected in 2024, it’s possible you’ll 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, for those who plan to make vital 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 the moment allowed).

Additionally, for those who 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 positive aspects on these securities could be added to revenue when calculating AMT (versus zero in 2023).

Associated Tales

Remember 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, if that’s the case, take into account making a charitable present in 2023 somewhat than 2024. On this regard, a donor-advised fund supplied by means of some public foundations permits a donor to get a donation receipt right this moment, 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.

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