A set of wooden blocks with the numbers 2024 on them sit on a table with a stack of coins on top of them.

2023 Year-End Tax Planning: Deadlines and Strategies

December 4, 2023

As December 31 quickly approaches, it’s crucial to stay ahead with your tax planning strategies for the new year. This guide provides a comprehensive overview of important tax planning deadlines and upcoming changes for 2024, along with strategic advice to position both you and your business for a successful new year. Let’s dive into the steps you should take to prepare for a smooth transition into 2024.

Individuals

December 15, 2023

  • Pay your required 2023 quarterly instalment. The CRA now charges 9% interest (compounded daily) on under-remitting tax, compared to 5% a year ago.

December 31, 2023

  • Loss selling to reduce or recover capital gains tax for 2023, and up to 3 years prior:
    • Calculate your capital gains for 2023 to date.
    • Identify any investments in the red (loss positions).
    • If it makes sense, consider realizing some of those loss positions to offset realized capital gains for 2023 to date. and unsheltered gains in the three years prior (you may be able to recover some prior year tax). Marketable security trades must be made before December 27, 2023 to be settled by December 31, 2023.
    • Watch for the superficial loss rules that may deny or grind the tax loss you were otherwise expecting. For more information, see our previous post on tax planning when markets are down.
    • Consider foreign exchange gains and losses in your calculations.
  • Set up a Tax-Free Home Savings Account (FHSA):
    • If you are a qualifying individual, you can contribute $8,000 annually and $40,000 during your lifetime to an FHSA to help fund a home purchase.
    • If you make an $8,000 contribution to an FHSA by December 31, 2023, then you can claim a $8,000 tax deduction.
    • Even if you cannot fund an FHSA by December 31, consider opening up the account so you can double up your 2024 contribution from $8,000 to $16,000.
    • If you are a parent or grandparent and are otherwise wanting to help your child or grandchild with saving for a home, consider making a gift or documented loan to your child or grandchild to help them contribute to a FHSA.
    • For more information, read our previous post on the ins and outs of the new FHSA.
  • Contributions to a Registered Education Savings Plan (RESP):
    • Each year, a $2,500 contribution to an RESP can earn the maximum $500 grant for a child. The lifetime maximum grant is $7,200, and the maximum contributions is $50,000.
    • If you missed contributing for a year or more, you can only catch up for 1 year at a time (i.e., double contributions from $2,500 to $5,000). To maximize contributions, you should start contributing by the time the child is 10.
  • Contributions to a Registered Disability Savings Plan (RDSP):
  • If you turn 71 years old in 2023:
    • Consider making a final contribution to your Registered Retirement Savings Plan (RRSP).
    • Convert your RRSP to a Registered Retirement Income Fund (RRIF) by December 31, 2023.
  • Pay expenses to get a 2023 tax deduction or credit. Common expenses include:
    • Childcare expenses;
    • Certain child and spousal support payments;
    • Medical expenses;
    • Interest expenses incurred for investing or your business, investment counsel and advisory fees;
    • Interest on federal and provincial student loans;
    • Deductible legal fees;
    • Moving expenses; and,
  • Make charitable donations to get a 2023 tax credit:
    • If possible, donate in 2023 and consider donating marketable securities in lieu of cash, as tax savings may otherwise be lost or reduced in 2024 with Alternative Minimum Tax (AMT) rule changes.
    • See our recent posts on the new AMT rules and applying the charitable tax credit for examples of the impact of giving.

January 30, 2024

  • Interest on prescribed rate loans between family members (including loans to a family trust) must be paid by January 30, 2024.
  • Be sure to report the interest income received and interest expense paid in your 2023 personal tax return.
  • Interest on loans from your employer must be paid by January 30, 2024 to reduce the 2023 taxable benefit. If it’s a loan to buy shares of your employer, then you may be able to claim an offsetting deduction—consult with your DMCL advisor to see if this applies to you.

Trusts

December 31, 2023

  • Trustees must resolve to distribute or make payable any 2023 income or taxable capital gains to beneficiaries by December 31, 2023 to avoid the income or taxable capital gains being taxed in the trust at the top marginal tax rate.
  • Refer to our previous article on the updated 2023 trust reporting rules to learn more about how these rules may apply to you.

January 30, 2024

  • Pay any interest on loans made to the trust from non-arm’s length/related persons no later than January 30, 2024 (see section above).

Businesses

  • Consider accruing bonuses or declaring dividends before the business’ fiscal year-end. Consult with your DMCL advisor about how this strategy could be used to reduce or recover tax.
  • Repay shareholder loans owing to your company before its next fiscal year if the loan was outstanding at the end of its last fiscal year.
  • Consider accelerating purchases to strategically fit within your business’s fiscal year-end and to accelerate capital cost allowance (CCA)/tax depreciation deductions.
  • Consider deferring sales of investments or business property that will cause a gain to fit into the next fiscal year. Be sure to do so before the release of the 2024 Federal Budget, should the government raise capital gain inclusion rates.

All Taxpayers—Additional Considerations

Expanded General Anti-Avoidance Rules (GAAR)

  • As of January 1, 2024, the expanded GAAR take effect, which broadens the scope of transactions that the CRA may choose to apply the GAAR to:
    • From a transaction(s) whose main purpose was to obtain a tax benefit that is considered a misuse or abuse of the Income Tax Act.
    • To a transaction(s) in which one of the main purposes (not just the main purpose) was to obtain a tax benefit that is considered a misuse or abuse of the Income Tax Act.
    • Be sure to consider this when documenting transaction objectives.
    • Additionally, a transaction significantly lacking in economic substance (i.e. if positions of all non-arm’s length taxpayers, such as spouses and children or a related corporate group, are unchanged before and after) is now presumed to be a misuse or abuse.
    • If GAAR applies, the tax benefit is denied. This may result in additional tax, interest, and a 25% penalty on the additional tax unless the transaction is proactively reported.
  • Therefore, if possible, try to complete all steps of a transaction before 2024 if one of the main purposes of a transaction is to obtain a tax benefit and the economic position of the related corporate group or family is unchanged.

Expanded BC Speculation and Vacancy Tax (SVT)

The upcoming tax changes for 2024, particularly regarding the expanded General Anti-Avoidance Rules, underscore the need for you and your business to adopt forward-thinking strategies. We encourage you to take advantage of these tax planning opportunities before the year ends, and to consult with your DMCL advisor for personalized advice tailored to your unique circumstances. Our goal is to help you navigate these changes effectively and ensure you’re starting the new year off on the right foot.


Article written by Lori Oliver, CPA, CA and Stewart Bullard, CPA, CA