Tips to reduce your 2023 tax bill
These tips will help reduce the stress of filing your tax return.
These tips will help reduce the stress of filing your tax return.
As the saying goes, ‘there’s no time like the present.’ With a little bit of planning and organization, you can boost your after-tax cashflow in 2023. Preparing ahead of time can go a long way to reduce your stress ahead of that dreaded annual deadline to file your personal income tax return in 2024.
The personal income tax filing deadline is April 30 for most of us. But, if you or your spouse or common-law partner are self-employed, the filing deadline is June 15. If either of these dates fall on a weekend, your tax return will be considered to be filed on time – as long as it is received by the Canada Revenue Agency or postmarked on or before the Monday that follows.
Property flipping rules
Any person who sells a property on or after January 1, 2023 that they have owned for less than 12 months will be taxed on 100% of their profit as business income. There are some exceptions, including the death of the taxpayer, marriage breakdown, disability, etc.
Multigenerational Home Renovation Tax Credit
To help families living together in multigenerational homes, a tax credit of up to $7,500 (or 15% of allowed expenses up to $50,000) can be claimed, related to the construction of a secondary suite for a senior or an adult with a disability.
It is important to retain valid receipts associated with the costs incurred to build the secondary suite.
Request a reduction in the tax withheld from your pay
If you intend to contribute to your self-directed registered retirement savings plan (RRSP) in 2023, rather than wait for a tax refund in the spring of 2024, you can effectively receive that refund with each pay cheque. Request to have the amount of tax withheld from your pay reduced to reflect the contributions you will make to your self-directed RRSP in 2023.
Your employer will require a letter from the Canada Revenue Agency (CRA) giving them permission to reduce the amount withheld. To get this letter, fill out Form T1213, Request to Reduce Tax Deductions at Source and send it to the CRA. Expect that it will take six to eight weeks to get a response from the CRA.
It’s important to note that the T1213 form is for a specific year. You will have to make this request annually.
Other reasons why you may want to fill out Form T1213, include other anticipated expenditures related to significant medical expenses, donations, support payments, etc.
You may, also, consider such a request when you anticipate your annual bonus payment and know that you are going to contribute a part to, for example, your RRSP.
Access available tax deductions and credits to reduce your 2023 tax bill or increase your 2023 refund
There are many tax deductions and tax credits available to taxpayers.
Tax deductions reduce the amount of income that is taxable.
Canada has a graduated tax rate system. This means that as your income goes up, you pay more tax on each extra dollar that you earn. The amount of tax that you pay is dependent on the tax bracket associated with that extra dollar of income. So, taxpayers usually seek to keep their income, which is taxable, below the next tax bracket.
Tax credits claimed reduce the amount of tax you must pay, but the reduction is usually at the lowest rate of tax. Irrespective, they are still worth claiming.
With the right documents in hand, you can maximize the deductions and credits to claim. It will save you tax. This will also reduce the stress that goes with gathering documents at the last minute when you prepare your annual tax return.
It will require some up-front organization and discipline throughout the year, but it’s simple to start:
Speak with a qualified tax advisor to learn more about these and other potential tax credits to claim.
Make your RRSP contributions early in the year to maximize the potential tax deferred growth within your RRSP.
Find out how much you can contribute to your RRSP and any unused amount on your Notice of Assessment. You can also get this information through your on-line account (known as My Account) with Canada Revenue Agency. Provide your Advisor with a copy of your Notice of Assessment.
For contributions made in the first 60 days of 2023, an RRSP contribution slip will be sent to you in March 2023. These contributions should be reported in your 2022 income tax return. However, you do not have to deduct the total amount contributed against your 2022 income. Some or all of the amount contributed can be carried forward to a future taxation year and, ideally, claimed as a deduction in a year when your income is higher, and you would otherwise pay tax at a higher rate.
If you can’t contribute the full amount at the beginning of the year, consider contributing each pay day. Set up a pre-authorized contribution (PAC) arrangement. Money can be withdrawn from your account based on your pay schedule, for example. It’s a disciplined approach to saving, with an opportunity to take advantage of market variability, commonly referred to as ‘dollar cost averaging’.
If your employer is willing to match some or all of your RRSP contribution, sign up! This is a great opportunity to enhance your savings, at minimal cost to you.
Your employer’s retirement savings plan option may be called a Group RRSP or a Defined Contribution Pension Plan. Speak to your employer’s human resource department or an advisor to learn more about these retirement savings options.
While this summary of tax saving ideas is not exhaustive, it’s a great starting point. So, with a little effort and planning, you, too, can save on taxes in 2023.
Information contained in this article is provided for information purposes only. Its not intended to provide or be a substitute for professional, financial, tax, insurance, investment, legal or accounting advice and should not be relied upon in that regard. It also does not constitute a specific offer to buy and/or sell securities. You should always consult your financial advisor or tax specialist before undertaking any of the strategies discussed in this article to ensure that all elements and your personal circumstances are taken into consideration in developing your individual financial plan. Information contained in this article has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to its timeliness or accuracy and SLGI Asset Management Inc. disclaims any responsibility for any loss that may arise as a result of the use of the strategies discussed.