Financial Focus: Early 2023 tax tips

By Craig Elder on December 10, 2022.

When the end of the year approaches, many individuals place a greater focus on tax planning to minimize their income tax liability. Beyond the end of the year, however, there are some areas of tax planning that often get overlooked. For example, there are tax planning strategies that may only be available early in the New Year. With that in mind, this article summarizes some of the strategies that have deadlines in early 2023.

COVID-19 benefits

In 2022, there was a continuation of many COVID-19 related supports and benefits that are taxable. Keep in mind that the government may not have withheld a sufficient amount of tax at source. If you’ve received any government benefits related to COVID-19, you may want to estimate your total income from all sources and set aside funds to pay any potential taxes arising from those benefits.

2022 RRSP contribution deadline

The deadline for you to make a contribution to a registered retirement savings plan (RRSP) that can be claimed as a 2022 tax deduction is March 1, 2023.

2023 RRSP contribution room

It’s generally a good idea to contribute to your RRSP as soon as possible to maximize the tax-deferred growth in your plan and to avoid the stress of trying to meet a last- minute deadline. Keep in mind that January 1 is the earliest day you can make a 2023 RRSP contribution using the new room that’s created from your prior year’s earned income without triggering an over-contribution penalty.

Tax-free savings account (TFSA)

Consider making a contribution to your TFSA early in the 2023 calendar year to maximize the tax-free growth in your plan. The TFSA contribution limit is $6,500 for 2023. If you’ve been eligible to open a TFSA since 2009 and have not yet contributed to one, your contribution limit would be $88,000 as of January 1, 2023.

Eligible retiring allowance

If you received a retiring allowance in 2022, you have until March 1, 2023 to transfer the eligible portion to your own RRSP without affecting your RRSP contribution room. This transfer will allow you to defer taxation on the eligible retiring allowance received until it’s withdrawn from your RRSP in the future. Keep in mind that your eligible retiring allowance can’t be transferred to a spousal RRSP.

Business owners paying a bonus

If your corporation declared a bonus in 2022, remember to pay that bonus before 180 days after the corporation’s year-end. Canadian tax rules allow a corporation to deduct a bonus declared to an employee on the corporation’s previous year’s tax return, as long as the bonus is paid before 180 days after the corporation’s year-end.

Conclusion

This article covers some common tax planning strategies and reminders that you may want to consider early in the New Year. Speak with your qualified tax advisor to determine if implementing any of the strategies is right for you.

A. Craig Elder, CFP, FMA, CIM, FCSI, is a Senior Portfolio Manager and Wealth Advisor with Elder & Punko Wealth Advisors of RBC Dominion Securities Inc. in Medicine Hat http://www.elderpunkowealth.ca . Source material provided by RBC Wealth Management. RBC Dominion Securities is a member of the Canadian Investor Protection Fund. For more information on this and other financial strategies, contact Craig at craig.elder@rbc.com or 403-504-2723

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