December 2, 2022 by David Christianson
The year 2022 will be remembered for a lot of negative things, not completely offset by Canada’s appearance in the World Cup. Maybe we can make the year a little better with our annual year-end tax planning checklist.
Remember that most of these items have a December 31 deadline, but for practical purposes, get things done well before the holidays, to avoid disappointment.
- Make donations. Your combined federal and provincial credit is about 30% on the first $250 each year, and 46% on any additional amounts. Therefore, $1,000 in qualified charitable donations will reduce your taxes by about $422.
o Combine donations with a spouse so there is only one $250 amount.
If you have investments that have gained significantly in value (“appreciated securities”), consider donating those directly into the investment account of the charity or Canada Helps for the benefit of the charity, as opposed to donating cash. When you donate securities “in kind” this way, then the capital gain becomes tax free. You still get the full tax credit for the market value of the donation.
- Self-Employed & Business - Incur allowable self-employed business expenses by year end. If you planned on purchasing equipment soon, do it in 2022 to accelerate your depreciation by a year, versus waiting till January. The same is true for deductible expenses.
o On the other hand, if you have work that extends over December and January, consider providing your progress invoice in January, rather than December.
- Capital gains and losses. Request reports of realized and unrealized capital gains for 2022 from your investment advisor. As we discussed last week, incur capital losses before year end, and delay realizing capital gains until next year (or longer). Net losses incurred in 2022 (that exceed your current gains) can be carried back to recover tax paid on net capital gains in 2021, 2020 and/or 2019.
o Remember if you are selling to claim a capital loss, you must wait 30 days or more before buying back identical property.
- Work from Home – The rules remain the same for 2022, for employees working from home due to Covid-19. Employees can claim $2 for each of those days as an employment expense to a maximum of $500. CRA provides a simplified form (T777S) and a “flat rate method” for this claim. Be sure to read the complete rules.
- TFSA – We always recommend a TFSA contribution if you have unregistered money that would benefit from tax sheltering on its investment income. There is no deadline. The 2022 limit is $6,000 but goes up to $6,500 in January. Make the contribution early in 2023 if you have the cash.
- On the other hand, if you are planning a TFSA withdrawal , get that done before December 31. CRA will add fresh contribution room to your account January 1, equal to any withdrawals made prior to December 31. If you wait until January to make a TFSA withdrawal, you won’t get that contribution room back until 2024.
- RRSP - Conversely, if you are planning an RRSP
withdrawal or an extra withdrawal from your RRIF, wait until January,
so you are taxed in 2023.
- While the RRSP deadline is normally 60 days after year-end, the deadline becomes December 31 for anyone who turned 71 in 2022 to make a contribution deductible in 2022.
- If you have loaned money to a spouse or child at the 1% (now 2% as of July 1, 2022, CRA Prescribed rate in order to avoid attribution of investment income, remember that they must pay you the interest within 30 days of year end.
As always, we recommend that you review last year’s tax return for any deductions or credits you took, to make sure you make any required payments by December 31.
Remember, it’s never too early to get started on the fun of tax planning.
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Dollars and Sense is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized professional advice.
Please consult legal, tax, insurance and investment experts for advice on your unique situation.
David Christianson, BA, CFP, R.F.P., TEP, CIM is recipient of the FP Canada™ Fellow (FCFP) Distinction, and repeatedly named a Top 50 Financial Advisor in Canada. He is a Portfolio Manager and Senior Wealth Advisor with Christianson Wealth Advisors at National Bank Financial Wealth Management, and author of the 2021 book Managing the Bull, A No-Nonsense Guide to Personal Finance.