Year-End Planning—it’s not too late!

This article was originally published December 16, 2021 and has been updated to include 2022 year-end planning deadlines and other updated details.

December 31 is fast approaching. If you haven’t already began to think about your tax planning strategies, there’s still time to take advantage of the opportunities before the year-end. Here is a short summary of tax planning deadlines and steps you can take to position yourself well going into the new year:

Individuals

December 31, 2022 Deadlines

• Loss selling to reduce or recover capital gains tax for 2022 and up to 3 years prior
  • This must be completed by December 28, 2022 to be settled by the December 31, 2022 deadline
• Medical expenses
• Interest expenses (including for student loans), investment counsel and advisory fees
• Contributions to your TFSA (2022 contribution limit is $6,000)
  • If you are planning to withdraw funds from your TFSA, consider doing so before year-end so you can re-contribute in 2023 without waiting an extra year
• Contributions to your RRSP if you turned 71 years old in 2022, otherwise the deadline is March 1, 2023
  • The 2022 limit is the least of $29,210 and 18% of your earned income, and is reduced by your pension adjustment if you or your employer make contributions to a pension
  • You will also have to wind-up your RRSP or convert it to an RRIF if you turned 71 this year
• Contributions to an RESP
• Childcare expenses
• Certain child and spousal support payments
• Deductible legal fees
• Moving expenses
• COVID-19 benefit repayments
  • Repayments made before 2023 can be deducted in the year of repayment or in the year the benefits were received
• Charitable giving
  • Consider donating appreciated assets such as marketable securities or flow-through shares
  • Refer to our previous post on tips for applying the charitable tax credit for more information

January 30, 2023 Deadlines

• Interest on family loans between members, including loans to a family trust, must be paid by January 30, 2023
  • Remember to report the interest income received and interest expense paid (the minimum interest rate is the CRA’s prescribed rate when the loan was made)
  • Keep in mind, a loan (whether vehicle, shares, etc.) by an employer to an employee may result in a deemed taxable benefit being included in the income of the employee

Trusts

December 31, 2022 Deadlines

• If you are a trustee, consider reviewing your list of beneficiaries to see if changes should be made no later than December 31, 2022, or decide whether the trust still serves its purpose or if it should be wound-up (new rules include bare trusts)
• Starting with the 2023 tax year, you will need to gather and provide the following information to the CRA: 
  • Name(s);
  • Address(s);
  • SIN for the settlor, trustee(s) and all beneficiaries (which may be awkward if someone doesn’t know they are a beneficiary and it may make sense that they no longer are)
  • Refer to our article on the updated 2023 trust reporting rules for more information
• Trustees must resolve and distribute or make payable any income or taxable capital gains to beneficiaries by December 31, 2022 to avoid being taxed in the trust at the top marginal tax rate
• Pay any interest on loans made to the trust from non-arm’s length/related persons no later than January 30, 2023 (see section above)

Businesses

• Consider accruing bonuses or declaring dividends before the business’ fiscal year-end, and consult with your DMCL advisor about how this strategy could be used to reduce or recover tax
• Consider immediately expensing certain equipment and accelerating purchases to strategically fit within your business’s fiscal year-end
• Consider deferring sales (if possible) of investments or business property that will trip a gain to fit into the next fiscal year
  • Be sure to do so before the release of the 2023 Federal Budget, should the government raise capital gain inclusion rates

Investments in Foreign Affiliates

Individuals, trusts, partnerships or corporations as shareholders

• Be aware of accelerated foreign reporting deadlines
  • If you have investments in foreign affiliates, there’s a new expanded T1134 form that is more than triple in length and is now due 10 months after year-end if the year-end began in 2021
  • Refer to our article on the new T1134 form and reporting for controlled and non-controlled foreign affiliates for more information 

Canadian-controlled private corporations (CCPC) with foreign affiliates with investment income

• Consider having the foreign affiliate pay a dividend from its investment income (i.e., foreign accrual property income) to its Canadian-controlled corporate shareholder for the Canadian company’s tax year that begins before April 7, 2022
  • Otherwise, the Canadian company will likely have additional Canadian tax to pay on dividends it receives unless the foreign affiliate paid at least 52.63% foreign tax on the income, which is not likely the case
  • As background, for year-ends that begin before April 7, 2022, the foreign tax rate threshold is only 25% (compared to the increase to 52.63%), which typically leads to a large Canadian tax deferral. Thus, the Federal government implemented changes to remove this deferral and make it more costly to have this structure.
  • Keep in mind, there may be foreign withholding tax on dividends paid by the foreign affiliate to its Canadian shareholder(s)

As always, there are plenty of deadlines to be aware of, credits to be claimed, forms to be completed and measures to be taken before the end of the year. To make sure you and your business are starting off the new year on the right foot, talk to your DMCL advisor about all the planning strategies you should be taking before the ball drops this year.

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