2022 year-end tax planning checklist

Consider these time-sensitive items & plan ahead for 2023
 

Effective wealth planning takes place throughout the year. However, you can take some key steps before the end of the year and early in the new year from a tax planning perspective that can make a positive impact on your overall finances.

While the following list is not exhaustive, here are some time-sensitive items to look at now for your 2022 tax return as well as proactive items for 2023.


Before December 15, 2022

Pay quarterly tax instalments for 2022, if required.

If your 2021 personal tax return showed net tax owing of over $3,000 ($1,800 for Quebec residents), you may have received a notification from the Canada Revenue Agency (CRA) and Revenu Québec for Quebec residents requiring you to pay quarterly tax instalments for 2022.

If you have not made these instalments and expect to owe tax after your withholding taxes at source are accounted for, you should make a payment by this date. This will reduce or avoid instalment interest and penalties being charged.


Before December 28, 2022

☐ Put tax-loss selling strategies to work:

  1. Calculate the capital gains you have realized for 2022.
  2. Identify and sell investments that are in loss positions. Trades must be entered on or before December 28, 2022 to be settled by year-end.
  3. Net your capital losses against capital gains on your 2022 tax return.

Note: Be sure to factor in the impact of foreign exchange if investments in loss positions are not denominated in Canadian dollars.

 

In addition, any tax-loss selling strategies you use should account for the “superficial loss” rules, which will deny any capital losses if the investments are repurchased in a specified time period. Please refer to our “Tax-Loss Selling” and “Advanced Tax-Loss Selling” education articles for more details.


Before December 31, 2022

☐ Tax-Free Savings Account (TFSA):

  • Contribute to your TFSA. The TFSA dollar limit for 2022 is $6,000. Keep in mind that TFSA contribution room accumulates if not used, so you may be able to top up your TFSA if prior contributions were missed. Check with the CRA to verify your unused contribution room.
  • If you plan to withdraw from your TFSA soon, consider making the withdrawal by year-end rather than waiting until early 2023. This is because a withdrawal in 2022 will be added back to your TFSA contribution room at the beginning of 2023.

☐ Registered Retirement Savings Plan (RRSP) and Registered Retirement Income Fund (RRIF):

  • Consider withdrawing funds from your RRSP or RRIF by year-end if you are in a low tax bracket for the 2022 tax year, or to take advantage of the $2,000 pension tax credit for RRIF withdrawals made by individuals that are at least age 65.
    • Note: If you are the owner of a spousal RRSP, you should be mindful of “income attribution” rules that may apply to withdrawals you make from the account, if your spouse had made contributions to the account during the year or the two prior calendar years.

  • If you plan to withdraw from your RRSP under the Home Buyers’ Plan (HBP) or Lifelong Learning Plan (LLP), consider making the withdrawal in early 2023 rather than by year-end to maximize the repayment period.
  • If you are age 71 this year, you must convert your RRSP to a RRIF by December 31 and begin taking minimum withdrawals next year. Consider the following:
    • Using your younger spouse’s age for minimum payment calculations.
    • Making a final RRSP contribution by year-end, if you have earned income in 2022 and do not have a younger spouse that you can make RRSP contributions for in the future. A final contribution can be made to account for new RRSP room that will accrue on January 1, 2023 but will not be available to you as you can no longer own RRSPs. However, note that if the final contribution exceeds your 2022 RRSP contribution limit, there will be a 1% penalty tax payable on the overcontribution for the month of December, before new room accrues on January 1, 2023.

☐ Make charitable donations

  • Donating certain capital property, such as publicly traded securities, directly to charities in-kind, can increase your tax savings.
    • Note: Some charities may require additional time to accept and process donations, particularly in-kind, during this time. You should plan accordingly.

☐ Contribute to a Registered Education Savings Plan (RESP) or Registered Disability Savings Plan (RDSP) for the benefit of your family members.

  • The federal government can provide grants to RESPs and RDSPs which are tied to contributions made.

☐ Pay all tax-deductible expenses.

These include but are not limited to:

  • Investment management fees
  • Interest paid on borrowings used for investing
  • Child care expenses
  • Medical expenses
  • Home office expenses
    • Note: Please refer to our “Home-Office Deductions For 2020-2022 Tax Years” education article for more details on claiming working-from-home expenses.

☐ Consider whether to intentionally recognize or delay taxable income in 2022 if your marginal tax rate is expected to increase or decrease in 2023, respectively.

  • If you expect your marginal tax rate will be significantly different between this year and next year, you may wish to intentionally recognize or delay items of taxable income and deductions to take advantage of the anticipated tax rate differences.
  • Note: For example, if your marginal tax rate in 2023 is expected to be higher than in 2022, either because of your anticipated income levels or because you believe tax rates and/or the capital gains inclusion rate will increase, you may wish to trigger additional capital gains this year by selling investments. Remember, trades must be entered on or before December 28 in order to settle by year-end. Please refer to our “Tax-Gain Harvesting Strategies” education article for more details.

☐ Consider whether you wish to enter into an income- splitting loan.

  • Income-splitting loans generally carry interest equal to the CRA’s “prescribed rate” to avoid the application of income attribution rules. Please refer to our “Spousal Loans” education article for more details.
    • Note: The prescribed rate is updated quarterly. It is currently 3% until December 31, 2022. As interest rates continue to increase, it is possible that the prescribed rate as of January 1, 2023 may also increase. You should seek tax advice and consult your Richardson Wealth Advisor to evaluate whether it makes sense to implement an income-splitting loan strategy now, given the current interest rate environment.

Before January 30, 2023

☐ Pay the accrued interest on any income splitting loans outstanding in 2022.

  • Interest on such loans must be paid on or before this date to avoid the application of income attribution rules.
    • Note: If your income-splitting loan was entered into during 2022, accrued interest must be paid on or before this date, even if the loan has not been outstanding for a full 12 months.


Before March 1, 2023

☐ Make RRSP and/or spousal RRSP contributions.

  • A RRSP or a spousal RRSP contribution made on or before this date will be deductible on your 2022 tax return, subject to your RRSP contribution limit. The RRSP dollar limit for 2022 is $29,210.

  • Pay the minimum repayment amount on the outstanding balance of your HBP or LLP. If the minimum repayment amount is not made on or before this date, it will be taxable on your 2022 personal tax return.


Additional considerations for business owners

We recommend that you work with your tax advisors to ensure all income, deductions, and credits are accounted for and compliance requirements are fulfilled prior to the filing deadlines for your 2022 personal and corporate tax returns.

If you are an incorporated business owner, items to consider include but are not limited to:

  • Salary and dividend mix for the year to yourself and family members. Salaries paid must be reasonable in the circumstances. Note that dividends paid to related persons from a private corporation may be caught under the “tax on split income” rules. Please refer to our “Shareholder Remuneration” and “Tax on Split Income” education articles for more details.
  • Planning for investments held within your corporation, particularly if it or any other associated corporations benefit from the “small business deduction” on active business income. Tax rules phase out the small business deduction limit of an associated corporate group once its passive investment income from the prior year exceeds $50,000.
  • Repaying shareholder loans to your corporation to avoid potential inclusion of a taxable benefit.
  • Declaration of “capital dividends” from your corporation’s “capital dividend account.” Capital dividends are favourable because they are tax-free distributions to Canadian-resident shareholders.
    • Note: If it makes sense to implement tax-loss selling in your corporate investment portfolio, you may want to review whether there is a positive balance in the capital dividend account and whether to declare a capital dividend prior to selling investments. This is because capital losses realized will immediately decrease the capital dividend account balance.


Additional considerations for trustees of trusts

  • If you are a trustee of a trust that has taxable income during the year, we recommend that you work with your tax and legal advisors to determine whether this income will be retained in the trust or will be distributed to beneficiaries and the associated tax implications. Note that trustee decisions to distribute income to beneficiaries generally have to be made by year-end for this income to be taxed in the beneficiaries’ 2022 tax returns.


Additional considerations for certain owners of Canadian residential real estate

This year, the federal government enacted an annual “Underused Housing Tax” (UHT) of 1% on the value of Canadian residential real estate that is considered vacant or underused. The UHT applies as of January 1, 2022 and includes an annual declaration requirement to the CRA.

 

Under the UHT rules, the following categories of owners of Canadian residential real estate may be required to comply with the annual declaration requirement, even if the real estate is not considered vacant or underused (and no UHT is payable):

  • Individuals who are not Canadian citizens or permanent residents (under immigration law)
  • Canadian private corporations and trusts, even if the shareholders and trustees, respectively, are Canadian citizens or permanent residents (under immigration law)

If you fall under either of the categories above, you should seek tax advice on the UHT as there are penalties for failing to file the annual declaration. For the 2022 year, the declaration is due by April 30, 2023.

Note that Canadian citizens and permanent residents (under immigration law) that directly own Canadian residential real estate are exempt from the UHT and the annual declaration requirement.


Conclusion

We recommend you discuss these strategies with your professional investment, tax, and legal advisors before implementation to make sure they fit within your overall wealth plan.

Contact your Richardson Wealth Advisor for more information on these topics.