Year end planning
Tax reminders and year end planning considerations
December 15 Instalment Reminder
Please ensure you pay your personal income tax instalments no later than December 15 if you are required to make instalment payments.
Prescribed Rate Loans
We have written to you throughout this year about the benefits of prescribed rate loans. The prescribed rate increased multiple times throughout 2022 as the Bank of Canada increased interest rates to combat inflation, and currently sits at 3% as of October 1, 2022. Please ensure you pay any interest owing on prescribed rate loans in effect during 2022 no later than January 30, 2023.
Reporting Requirements for Trusts
We have also written to you on multiple occasions regarding the enhanced reporting requirements for trusts that were expected to take effect for December 31, 2022 year-ends. These reporting requirements will increase the disclosure required for settlors, beneficiaries and trustees, and will also create filing requirements for trust arrangements that previously did not require annual filings with Canada Revenue Agency. Implementation of these enhanced reporting requirements has been delayed to December 31, 2023. We will keep you informed of any future announcements.
Realizing Capital Gains and Losses
Realized capital losses can be applied against capital gains reported during the year, carried back to apply against capital gains reported in any of the three preceding years, or carried forward indefinitely to apply against future capital gains. You may want to consider realizing capital losses before year-end to apply against capital gains realized during the year. The trades must be settled prior to December 31, 2022 to report on your 2022 tax return. We recommend executing trades no later than December 22, 2022 and confirming the settlement date with your broker. The same securities should not be repurchased 30 days before or 30 days after the settlement date to avoid adverse tax consequences.
You may also want to consider realizing capital gains prior to year-end if you have capital losses to report during the year. Any sale of securities should be discussed with your investment advisor.
TFSA Contributions and Withdrawals
You should consider contributing to your TFSA or making a withdrawal prior to December 31 depending on your circumstances. The 2022 annual limit for these accounts is $6,000 if you are 18 years of age or older and a resident of Canada. The lifetime contribution limit is up to $81,500. You can confirm your lifetime contribution limit with Canada Revenue Agency.
Withdrawals from TFSAs are not added back to your contribution room until the subsequent calendar year. Therefore, it may be advisable to make the withdrawal prior to the end of 2022 if you are planning any withdrawals during 2023. Any withdrawals completed during 2022 will be added back to your contribution room on January 1, 2023, allowing you to recontribute any excess funds you have available throughout 2023.
RRSP Contributions and HBP Repayments
Contributions to RRSPs made prior to March 1, 2023 can be claimed as a deduction on your 2022 personal income tax return. If you turned 71 during the year RRSP contributions must be made by December 31, 2022. If you are over the age of 71, have earned income and contribution room, you can make contributions to the RRSP of a spouse who is 71 or younger. You can confirm your 2022 contribution room by reviewing your 2021 Notice of Assessment. Please contact us if you would like our assistance determining the optimal RRSP contribution to make for the year.
2022 Home Buyers’ Plan repayments are also due no later than March 1, 2023. These repayments will be deducted from any regular RRSP contributions made for the year. Your minimum repayment amount will be included in taxable income for the year if you do not make any RRSP contributions prior to March 1, 2023.
Businesses are required to register for GST/HST once they exceed the small supplier threshold. You exceed the small supplier threshold if your business makes taxable supplies of $30,000 or greater a single calendar quarter or in four consecutive calendar quarters. Taxable supplies of associated entities are also considered in this determination. Please contact us if you believe this may apply to you. We would be happy to help you determine your effective date of registration and advise on your registration and reporting requirements.
The year-end is a great time to consider if incorporation may be beneficial to you and your business. Corporations receive the benefit of tax deferrals which allow you to increase your cash flow and reinvest in your business. Incorporation may be beneficial to you if you have significant excess cash that you do not require to pay for personal expenditures. We hope that your business had a successful year and would be happy to assess if incorporation may be beneficial to you.
Please contact us if you would like to discuss any of the above further and we would be happy to assist you.
NOTE: Please understand that any posts written in the past may not be reflective of the current applicable obligations, rights and benefits.