It’s the start of another new year which for many Canadians means an opportunity to improve their financial health. A recent poll conducted by Ipsos on behalf of Global News looked at the type of resolutions Canadians intended to make for 2023 and finance-related goals came in at second place1.

Financial goals are a broad umbrella and could include objectives such as saving more, paying bills on time, paying less taxes, etc. There is a wealth of financial planning advice available online and it can be overwhelming to make sense of it all. We’ve narrowed down a few pointers to help with your 2023 resolutions.

Save Taxes: Tax Loss Harvesting

Tax loss harvesting is a very simple yet effective tax planning tool. If you wish to sell underperforming stock in your non-registered portfolio, you can use the resulting capital loss to offset realized capital gains. This tool is timely for taxpayers who have recently sold real property (that is not their principal residence) at a gain or investors that are rebalancing their portfolio amid this volatile market.

This tool is effective even if you haven’t realized any capital gains in the current year. Capital losses can be carried back up to three preceding years or carried forward indefinitely, leaving plenty of room for you to take advantage of this planning opportunity.

Be More Aware: Interest Deductibility

When filing your taxes this April, keep in mind the CRA’s requirements surrounding interest deductibility on debt.

In general, interest paid on money borrowed to purchase investments is tax-deductible. However, the investments must generate investment income such as dividends and interest. If the investments only produce capital gains, the interest paid is not deductible.

An important date to mark on your calendar if you have a prescribed rate loan in place is January 30, 2023. Any interest payable on prescribed rate loans that were outstanding in calendar year 2022 must be paid by this date. Missing this deadline will not only cause a relinquishment in the interest deduction but will result in the application of the attribution rules which will defeat the intended purpose of this tax savings strategy.

Get Organized: New Trust Disclosure Reporting Requirements

If you have a trust in place, there are new rules and reporting requirements you should be aware of. For tax years ending after December 30, 2023:

• Generally, all trusts will be required to file a T3 Trust Income Tax and Information Return, even if the trust has no taxes payable or did not make any distributions or allocations during the year. There are exceptions to this rule which include but are not limited to: trusts that hold assets worth $50,000 or less in fair market value and trusts in existence for less than three months.
• Trusts that are filing tax returns must disclose additional information in respect to all trustees, beneficiaries, settlors and anyone with the ability to exert control or override trustee decisions. This additional information includes:
  • Name
  • Address
  • Date of birth
  • Jurisdiction of residence
  • Taxpayer identification number (e.g. Social Insurance Number, Business Number, Trust Identification Number)

Trustees should consult with their tax advisors to understand the new rules and determine the impact on their current structure.

Utilize New Opportunities: First Home Savings Account

Home ownership has been an ongoing concern for Millennials and Gen Zs as surging housing prices combined with an increased cost of living has made it difficult to afford a down payment on a first home. As part of the government’s response to this issue, the First Home Savings Account (“FHSA”) is being introduced effective April 1, 2023. The FHSA is best described as a hybrid of a Tax-Free Savings Account (“TFSA”) and the Home Buyers Plan (“HBP”) offered through a Registered Retirement Savings Plan (“RRSP”). Below is a general summary of each account.

The FHSA will be available to first-time home buyers that are residents of Canada and at least 18 years of age.

The above pointers are a general summary only and intended to provide you with ideas to improve your financial health. It is important to seek the assistance of your investment and tax advisors to understand the impact applicable to your specific set of circumstances before deciding to implement any planning.

Notes

1 https://www.ipsos.com/en-ca/news-polls/2023-cautiously-optimistic

2 This limit is as of 2023 and is applicable for Canadian resident individuals who were at least 18 years of age or older when the TFSA was introduced in 2009. The lifetime limit will be less for Canadian resident individuals born in 1992 or later.

3 The HBP withdrawal is required to be repaid within a period of 15 years, starting the second year after the year of withdrawal from the RRSP for the HBP. Unlike the HBP, amounts withdrawn from the FHSA are not required to be repaid into the account.

4 Amounts will be non-taxable only if they meet the conditions of a qualifying withdrawal. The conditions include that the taxpayer is a first-time home buyer at the time of the withdrawal and intends to occupy the home as their principal residence within one year of buying or building it.

Disclaimer

The strategies, advice and technical content in this publication are provided for the general guidance and benefit of our clients, based on information believed to be accurate and complete, but we cannot guarantee its accuracy or completeness. This publication is not intended as, nor does it constitute tax or legal advice. Readers should consult a qualified legal, tax or other professional advisor when planning to implement a strategy. This will ensure that their individual circumstances have been considered properly and that action is taken on the latest available information. Interest rates, market conditions, tax rules, and other investment factors are subject to change. This information is not investment advice and should only be used in conjunction with a discussion with your investment advisor. First Avenue or any other person do not accept any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein.