Year End Financial Planning Tips

Financial Planner Ines Iraoui returns to the podcast to discuss various yearend financial planning tips, including:

1. What subjects are we talking about today regarding yearend financial planning?
2. Let’s start with investing. I heard about the tax loss selling strategy, can you explain what it is?
3. Is there a deadline to do this?
4. Can I sell, trigger a loss, and buy back these securities the next day?
5. When it comes to donating, what are the options for year-end?
6. Can someone only donate in cash, or can they donate investments?
7. I heard there are possible changes in 2024 when it comes to donations, why is that?
8. Let’s focus now on retirement accounts, what needs to be done by the end of the year?
9. Any other strategy regarding RRIFs?
10. You mentioned TFSA earlier, was the new contribution limit announced for 2024?
11. Is there a deadline for make a TFSA contribution?
12. How about TFSA withdrawals?
13. What other recommendations would you have for year-end financial planning?

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Transcript

Chris Cooksey: Hello and welcome to the Advantaged Investor, a Raymond James limited podcast, a podcast that provides perspective for Canadian investors who want to remain knowledgeable, informed and focused on long term success. We are recording this on December 6, 2023. I'm Chris Cooksey from the Raymond James corporate communications and marketing department, and today, financial planner, Ines Iraoui returns to the podcast. Ines has been on the podcast many, many times. We've discussed things like RESPs, RRSPs, RRIFs, and all those other important financial planning topics. So check them out in the archives. Today, Ines and I will be discussing year end financial planning tips.

Welcome back to the podcast, Ines. I hope you're doing great.

Ines Iraoui: I'm doing great. Thank you for having me.

Chris Cooksey: Awesome. I look forward to our discussion. And as always, we've got a lot going on, so we'll jump right in and let's just start with the big one. What subjects are we talking about regarding year end financial planning?

Ines Iraoui: We are going to cover year end planning when it comes to investing, donating, retirement accounts, TFSA, and other few tips and notes.

Chris Cooksey: The full gamut coming right at the listener today. Let's start with investing then. At the end of the year, you always hear this is a great opportunity for any of those investments that maybe weren't the winners you expected, maybe do a little taxed harvesting and tax loss selling. So maybe just discuss that.

Ines Iraoui: Yep. Tax loss selling is a strategy to offset capital gains by selling investments with accrued losses. So, it's a strategy for those with non-registered investments holding unrealized capital losses and who aim to recover taxes paid on net capital gains for this year in the past or in the future because the losses can be carried back three years. In this case, it would be crucial for taxes paid in 2020 or carried forward indefinitely.

Chris Cooksey: Okay. And in terms of deadline, is it a December 31 thing or is it similar to RRSPs where it maybe stretches into the new year a bit?

Ines Iraoui: Yes, the last day for tax law selling of Canadian and U.S. securities is December 27, 2023 to ensure settlement in the same year, to ensure settlement in the same year.

Chris Cooksey: Oh, so that makes sense, so it's not hanging around until the next year. Just make sure it gets done early. Makes sense. Now, can I sell? And then I still think this is a really good buy, so I'm going to sell it, get the tax loss, and then I'm going to buy it the next day, and I'm going to sneak that by the CRA. Can I do that?

Ines Iraoui: No, because it's superficial, lots of rules apply. So if you repurchase a sold security within 30 days, the capital loss won't count. It won't offset your capital gains for 2023 or ever. If you wish to repurchase that security that you sold, you can set a date 30 days after the sale of that security, I would say it's best to speak with your financial advisor about this strategy before doing it, because it involves tax and financial planning, but also there is risk and the value of investments can change.

Chris Cooksey: All right. Now, in terms of donating securities, often a very effective way to help yourself and the charity you're donating securities to so what are the options there?

Ines Iraoui: Donating to registered charities can lower the income taxes with a federal donation tax credit of minimum 29 percent in 2023 plus additional provincial credit. This is for donations exceeding $200. You can pool donations with a partner and they must be made also by December 31.

Chris Cooksey: Do I have to sell the securities, take the cash and then donate it or are there other options?

Ines Iraoui: Yeah, some people may think that we can only donate in cash, but we can also donate publicly listed securities. I recommend the ones with accrued gains in a non-registered account. It eliminates capital gains tax and provides a tax receipt for the fair market value. So not the receipt for the adjusted cost base, not how much it costs you. So it really gives you a tax receipt for the full fair market value. I would say it's also essential to discuss this with your advisor early in December. So very soon to make sure it's done before December 31 deadline.

Chris Cooksey: All righty. Now, obviously the government's always looking at changing things when it comes to the tax code there may be possible changes on the horizon in 2024. So maybe just cover that.

Ines Iraoui: Yes. There are because of the proposed changes to the alternative minimum tax (AMT) for 2024. The AMT proposed changes are complex and would need their own podcast episode. I'll cover a little bit. So if you plan to make a donation in 2023, this one is crucial as the government, like I said, has proposed changes to the AMT for 2024, and that may impact charitable planning with changes in rates, exemptions, and changes to inclusion rates for securities donations. So the larger the donation you plan to make, the more significant the impact of AMT in the future.

Chris Cooksey: All right. Now, retirement accounts. We had a whole episode on what happens when you turn 71 by the end of the year. So maybe just focus on some retirement accounts year end information.

Ines Iraoui: Absolutely. If you turn 71 in 2023, you have until December 31 to make a final RRSP contribution before converting to RRIF. You won't be able to contribute in the first 60 days of 2024. So this is really important to be done in the next week couples with a younger spouse can bypass this recommendation, meaning when one is older than 71 and the other one is younger than 71, as long as the older partner has RRSP contribution room, they can still contribute in their partner's spousal RRSP.

Chris Cooksey: Okay any other strategies regarding RRIFs?

Ines Iraoui: Yes if you're between 65 and 71, you can convert a portion of your RRSP to a RRIF so that you're eligible to the pension income tax credit. This credit, it applies to the first $2, 000 of eligible pension income. It offers federal and provincial tax savings. Again, this one would recommend discussing this strategy with your advisor because it also depends on your other income streams. And maybe you are already receiving pension income. So wouldn't apply.

Chris Cooksey: Alrighty. Now we talked about TFSAs as well. It feels like we had a lot of inflation over the last year, and I know that TFSAs increases depend on the amount of inflation. So do we have a new contribution limit for TFSAs in 2024?

Ines Iraoui: It has been announced. Yes, we do. So Canadian residents aged 18 and older can contribute to a tax-free savings account with a 2023 limit of $6,500, and it's increasing to $7,000 in 2024. You see where inflation played a role here. The total contribution limit since TFSA's introduction in 2009 for those 18 and older at that time is currently $88,000 and it's going to be increasing to $95,000 in 2024 because of that $7,000 contribution limit.

Chris Cooksey: All right, and I'm pretty sure I know the answer to this one, but what's the deadline for a TFSA contribution?

Ines Iraoui: Yes, I'm sure you do. There is no deadline for TFSA contributions. And any unused limit can be carried forward to future years. I do recommend, it's good we are talking about it right now for year end financial planning tips, because I would recommend doing a contribution as soon as possible. If you have room so that you can benefit from growth for a longer period of time.

Chris Cooksey: And one of the great things about TFSAs is you can replace any withdrawals that you make, but there are rules around that, so maybe we cover that right now.

Ines Iraoui: Yes, that's where financial planning comes into place. So withdrawn amounts can generally be re-contributed in the following year, so that we have to be cautious about withdrawing and re-contributing in the same year, as it may lead to over contribution penalties. Now, if you're planning a TFSA withdrawal in 2024, consider doing it by December 31, 2023. I would say early 2024. If you're planning a TFSA withdrawal in early 2024, consider doing it by December 31 of this year to be able to recontribute it in 2024 without having to wait until 2025.

Chris Cooksey: Makes sense. And finally let's just open it up here - give us some general recommendations maybe for the year end financial planning process.

Ines Iraoui: Yeah, we, there are a few notes I didn't mention for example about RESP, RDSP, FHSAs, and expenses, so I'll go over [00:09:00] them if you, if you'd like. For example, for those who have RESPs, making an RESP contribution by December 31 is beneficial, especially for beneficiaries who are between the age of 14 and 17 as it allows you to maximize the Canada Education Savings grant for the next years before the beneficiary turns 18. And the same recommendation applied to our RDSP. So eligible investors may consider contributing to their RDSP by December 31 to receive assistance for the current year.

You probably remember we did the podcast on first home savings account? So for that one as well, we need to consider contributing especially well, obviously if we plan to become a homeowner. Provided that we meet the criteria, so being a Canadian resident, at least 18 years old and a first time home buyer you can contribute up to $8,000 before December 31 to benefit from a deduction against your 2023 income. So this one is tricky because it is similar a little bit to the RRSP. You can deduct the contribution against your income, but the deadline is December 31 and not the first 60 days of 2024. We have the next few weeks to do it. And finally, if you had any expenses related to investments in 2023, I recommend paying them in 2023 so that you can optimize your tax deductions or credits for the current year.

Chris Cooksey: Awesome. Always informative, Ines. Thank you very much for taking the time today. I look forward to you joining the podcast in the new year again. Until then, I wish you happy holidays, happy new year and hope to talk to you soon.

Ines Iraoui: Thank you. Happy holidays to you too, and happy new year.

Chris Cooksey: Thank you. Before I go, I just want to thank Peter Kahnert, who is retiring at the end of December, so hopefully these tips might help him. But without Peter's support, this podcast would not exist. Reach out to us at AdvantagedInvestorPod@RaymondJames.ca. Subscribe to The Advantaged Investor on Apple, Spotify, or wherever you get your podcasts. Please contact your advisor with any questions you have. On behalf of Raymond James and The Advantage Investor, thank you for taking the time to listen today. Until next time, stay well.

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