Five tax moves to make in 2024 before the ball drops
Yes, we know April feels far away. But we asked TD Wealth's Director of Tax and Estate Planning to share her top year-end tax moves for 2024. And guess what? You have to complete them by December 31.
TAXES
BY Dave Yasvinski
November 2024
Waiting until April to start thinking about your taxes is a little like cramming for an exam the night before. You might still manage a decent grade, but you’d be far less stressed and likely do better overall if you started preparing earlier.
Take advantage of your investment losses
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Although tax-loss selling can be done throughout the year, it often happens in later months as investors try to offset earlier gains. The strategy, which involves selling an asset in a non-registered account for a capital loss and using it to offset a capital gain, is typically part of a larger plan to reduce tax exposure.
If you plan to engage in tax-loss selling, it’s important to note that the Canada Revenue Agency’s Superficial Loss Rule means you can’t repurchase that same investment within 30 days of the sale. This rule is intended to prevent tax avoidance through the creation of artificial losses.
As Ewing notes, it's important to consider your overall strategy when making decisions around tax-loss selling. “Sometimes, it's done in isolation without really looking at the next step,” she says. “But you should never have tax be the sole driver of investment decisions.”
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Taking a proactive approach with your taxes can help you maximize deductions, optimize your investments and succeed in the year ahead.
“This is a year of change with some new rules coming in,” says Nicole Ewing, Director, Tax and Estate Planning, TD Wealth. “It’s always a good idea to stay on top of this stuff.”
Here are a few tax-related ideas to consider before 2024 comes to a close.
Disclaimer
Donating money is a great way to support a cause you care about while reducing the amount of taxes you'll owe next year.
While there are many ways to give, Ewing says if you're in a position to donate securities, an in-kind transfer could get you the most bang for your buck. That’s because when you donate directly from a non-registered account — as opposed to selling the assets first — you avoid paying capital gains. Moreover, by removing capital gains from the equation, you can also ensure you receive a tax credit for the full value of your donation.
“It’s honestly the best way to maximize the amount of your gift,” Ewing says. “It’s also super easy to transfer that gift in-kind, as opposed to making it an after-tax gift. Charities are in the business of making it easy to donate, so the process is very straightforward. Even the smallest charity should be able to facilitate it.”
Just remember, if you want to claim a tax credit for the current year, your donation must be made before December 31. Transferring securities isn’t instantaneous either, so make sure you plan ahead.
Consider giving back
The 2024 deadline for contributing to a Registered Retirement Savings Plan (RRSP) may not arrive until March 2025, but other types of registered accounts, including the Registered Education Savings Plan (RESP), adhere to the calendar year.
If you want to maximize your child's educational savings and take full advantage of the government's matching grant — in the form of the Canada Education Savings Grant (CESG) — you won’t want to miss that December 31 deadline.
Remember that the CESG will match 20% of your annual contribution to a maximum of $500 per year. Assuming you contribute at least $2,500 per year, you can receive a lifetime total grant of $7,200 per child. You can also carry one year’s worth of grant room forward (up to $1,000). “Rather than maximizing your contributions, focus on maximizing those grants,” Ewing says. “This is why timing and planning matters. If you accidentally give too much, too early, you could miss out on some of that money.”
Details on the government’s CESG grant can be found here.
December 31 is also the deadline for annual contributions to your Tax-Free Savings Account (TFSA) and First-Home Savings Account (FHSA). In 2024, the TFSA limit is $7,000, while the FHSA limit is $8,000, plus any unused contribution room.
Maximize your savings with government support
As always, it’s important to coordinate with your partner or spouse when it comes to tax-related decisions. If you’re supporting someone with a lower income, for example, you might be eligible for a non-refundable spousal tax credit that could decrease the amount of federal tax you’re required to pay. Beyond this, couples are allowed to combine certain expenditures in ways that can help them save. The list of eligible medical expenses, for example, is extensive and contains many items you might not have considered.
Finally, year-end is a good time to ensure you're storing any important slips or receipts somewhere they can be easily accessed. “Try to do this on an ongoing basis so you don’t have to catch up on everything at the end of the year,” Ewing says. “It will make your life much easier when tax time rolls around.”
While several tax moves have deadlines of December 31, it may be wise to get the paperwork done well in advance to ensure you receive the full benefit.
Get organized ahead of time
Earlier this year, the federal government introduced a change to the way capital gains tax is calculated. Specifically, the inclusion rate — the amount of capital gains that are taxable — has increased for any capital gains exceeding $250,000. Under the new rule, 66.7% of any capital gains above $250,000 are subject to tax. Previously, it was only 50%.
While you may think a $250,000 capital gains tax could never apply to you, you may be surprised. If you sell a cottage that has appreciated significantly in value, for example, you could feel its impact when you settle the tax bill. Fortunately, you may be able to recover some of that money over time, provided you have sufficient taxable income in future years, says Ewing.
“That’s where the planning really comes in,” she says. “You have to make sure you have future income that you can claim that credit against. Where people get caught is if the tax is triggered by one big event and they’re not going to have future income of any real significance.”
Understand the new capital gains rules
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SOURCES
Under the new rule, 66.7% of any capital gains above $250,000 are subject to tax. Previously, it was only 50%.