It’s time for a new rendition of The Twelve Days of Christmas. Every few years I introduce a new version, sung to the same tune but called The Twelve Claims for Taxes. This year, the song captures some of the newest tax changes and has been updated for the current economic conditions. My hope is that you’ll enjoy singing this with your family – maybe by a fire on Christmas Eve, while you enjoy a little non-deductible eggnog. On the first day of Christmas, my true love gave to me:
Some interest and a bank fee. Interest costs have soared over the past year, with the prime rate now at 7.2 per cent. You can reduce these costs by making them tax-deductible. How? If you have non-deductible debt you can pay it down using cash on hand or maybe liquidating some investments and paying down that debt. Then, you can reborrow to replace that cash or the investments you’ve used up. Because you will be now borrowing to replace the cash or investments – which will produce income – the interest is now deductible.
Two turtlenecks. With many people spending more time in the office these days, buying new clothing for work is common – and expensive. Sorry, but you can’t deduct the cost of clothing unless it’s specific to, and used solely for, your work (specialized clothing or equipment, for example) – and your employer requires you to pay for it. Bah humbug.
Three savings plans. RRSPs and TFSAs used to be the two primary savings plans for Canadians. Now you can add a third: the first home savings account (FHSA), which became available this year. Anyone who qualifies as a first-time homebuyer should open an account before year-end if possible. Even if you can’t contribute this year, you’ll receive $8,000 of contribution room for 2023.
Four moving friends. I don’t know about you, but I know four people who have moved in the past year from expensive cities to other parts of the country where buying a home is more affordable. The good news? Moving costs can be deductible if you move 40 kilometres closer to your new work or school. See my article from June 14.
Five onion rings. The cost of groceries has risen 5 per cent year-over-year as of November. It sure would be nice if we could deduct these costs. Any food that’s for personal consumption isn’t deductible – sorry. But one half of business-related meals are deductible. Our office is having a holiday party this week, and we’re buying food for everyone. Those costs will be fully deductible.
Six bills you’re paying. If you’re still working from home at least half the time, you may be able to deduct home-related costs. But you can’t use the simplified deduction available for 2020, 2021 and 2022; rather, you’ve got to use the detailed method for 2023 by filing Form T777 with your tax return, and your employer will need to sign Form T2200.
Seven donors gifting. If you’re a high-income earner, the new alternative minimum tax rules, which are expected to take effect Jan. 1, 2024, could reduce the tax benefits of making donations. You could gain more tax relief by donating more in 2023 – especially if you’re donating publicly traded securities. See my article from Nov. 29.
Eight trades a-working. If you’re a tradesperson who has to pay for his or her own tools, there’s good news: You can now claim up to $1,000 (up from $500) in tools expenses for 2023 and later years.
Nine folks are saving. Certain tax amounts have been indexed upwards to take high inflation into account. The TFSA contribution limit has increased to $6,500 for 2023 ($7,000 for 2024). Also, consider investing in bonds in your TFSA. Your interest will be tax-sheltered and, as interest rates fall in the future, you’ll profit.
Ten children buying. If you own a business and want to introduce younger family as shareholders, new rules apply starting Jan. 1, 2024. You can sell shares to a corporation owned by certain family members and benefit from capital gains treatment, but you’ll have to give up control, and there are timelines for involvement of family in the business.
Eleven owners flipping. Starting in 2023 you could face tax on the profits from the sale of residential real estate if you owned the property for less than 365 consecutive days. The profit will generally be taxed as business income, not capital gains, under the new rules. There are some exceptions.
Twelve higher credits. Every year, tax brackets and credits are indexed to inflation. The good news? The increase for your 2023 tax return is 6.3 per cent (for 2024 it will be 4.7 per cent) because inflation has been so high. This means that the tax-free basic personal amount has risen to a maximum of $15,000 for 2023 ($15,705 for 2024).
Tim Cestnick, FCPA, FCA, CPA(IL), CFP, TEP, is an author and co-founder and CEO of Our Family Office Inc. He can be reached at tim@ourfamilyoffice.ca.
Tim Cestnick