2023 Year End Tax Planning
As we gear down to the end of the year and start to think about a new one, we want to highlight a few personal and corporate tax planning ideas that we have been encouraging our clients to consider before the end of December.
As we highlighted in our summer blog post Five Useful Tax Planning Strategies, graduated tax rates make it important to smooth income over a period of years rather than having it come all in one year. Having income each year allows you to leverage personal tax credits and lower marginal rates. If there is no income in one year and high income in another, your ability to leverage these items is limited. For owner managed companies, income smoothing can be managed effectively by considering salary/dividend timing and mix.
For those earning employment income, consider the timing of certain discretionary deductions and tax credits like RRSP’s, donations, medical expenses to try to minimize overall tax. As an example, you have up until February 29, 2024, to make a contribution to RRSPs and if you contribute in the first 60 days of 2024 instead of before the end of 2023, you have the flexibility to choose which taxation year to claim the deduction. For more on RRSP contributions, please see our blog post RRSP Contributions to be made by February 29, 2024.
Consider your portfolio investments and income earned year to date, and if you have had gains, consider whether any investments also have an embedded loss that you can trigger to offset the gain. If so, now may be a good time to sell those investments to reduce the overall capital gain.
If you, or another related party, own a corporation and have borrowed funds, you need to take action. Loans from your company need to be repaid before the end of the company’s second taxation year to avoid a deemed income inclusion and corresponding tax liability. As an example, if your corporation has a December year end, funds borrowed in 2022 must be cleared through salary, dividend, or repayment before December 31, 2023. If you do not, you leave yourself exposed to tax, penalties and interest on the amount of the loan.
If you or your children are working hard in this economy to save money to buy a house, please take the time to consider whether it is preferential to contribute to an RRSP or the New Home Savings Account. While similar in many ways, the New Home Savings Account gives new home buyers the ability to withdraw up to $40,000 of savings tax free plus it gives tax relief on the annual contributions. For more information on tax incentives for new home buyers, look at our blog post A Useful New Incentive for Future First Time Home Buyers
The end of 2023 will also mark the end of the immediate expensing rules. Therefore, if you have a business or corporation and are planning purchases in 2024, it would be advisable to make those purchases before the end of 2023.
If you are purchasing manufacturing or processing equipment in Ontario, make sure you take advantage of the 10% refundable tax credit provided by the Ontario Made Manufacturing Investment Tax Credit.
Businesses that borrowed during COVID by securing a Canadian Emergency Benefit Account (CEBA) loan, must take action to secure the debt forgiveness that came as part of the government assistance. If your organization is eligible for loan forgiveness, the loan, less the amount to be forgiven, must be repaid on or before January 18th, 2024. Forgiveness can still be achieved if your organization needs to refinance the loan. See our recent blog post Canadian Emergency Benefit Account (CEBA) Loans for more details.
For more tips and reminders on ways to improve your personal tax position, please visit our blog post Personal Tax – Some Tips and Reminders. As always, the team at digitaltaxCPA is here to help you minimize your overall tax burden and answer your questions, please reach out to us at any time.
digitaltaxCPA is a digitally enabled, growing tax and accounting practice delivering pragmatic tax consulting, compliance, and cloud-based accounting services to a wide variety of clients. Each team member works collaboratively and, as part of our client’s team, to bring diverse perspective and experience with a focus on technology enabled services to efficiently supplement our client’s internal resources and help them meet their tax and accounting needs.
