Tax Season Investment Portfolio Details You Need to Take Care of Right Now Before the New Year
As you gear up for the holidays, don’t forget to take advantage of tax credits and deductions before the year wraps up to help you save more money.
While your tax refund can vary based on factors like your annual income and how much tax you’ve paid, claiming credits and deductions can increase that amount.
Canadians who had a tax refund in 2022 received an average of $2,092 from the CRA.
Tax deductions reduce your taxable income, while credits lower the tax you pay on the taxable income itself. Canadians can claim more than 400 tax deductions, credits (refundable and non-refundable), and expenses.
Jason Heath, managing director at Objective Financial Partners, says one of the tax credits most often missed is medical expenses. You can claim up to three per cent of your net income or $2,635, whichever is less, to claim eligible medical expenses on your return for the 2023 tax year.
“A lot of people don't realize what qualifies as a medical expense,” says Heath, adding that the most commonly overlooked is the premiums you pay for a health and dental plan.
Aside from credits and deductions, Ian Calvert, Vice President & Principal at Highview Financial Group, believes timing is the most crucial when it comes to offsetting capital gains realized in your portfolio.
Calvert says you can reduce your reported capital gains in nonregistered accounts — meaning, a non-TFSA or non-RRSP account — through year-end tax-loss selling.
For example, if you sold a stock or bond earlier this year that triggered a $10,000 capital gain, you would report 50 per cent of that income on your 2023 tax return. But, if there’s an investment in your portfolio that’s worth less than what you bought it for, you could sell it and subtract the realized loss against the realized gain, offsetting how much you’d have to pay in taxes.
“You can use those capital losses and carry them back up to three years to tax returns you filed in the previous three years where you had capital gains,” adds Heath. “On the flip side, if you don't have losses in the last three years, you can indefinitely carry forward your capital losses to claim in a future year against future capital gains.” This is known as tax-loss harvesting.
Both Calvert and Heath say beware of superficial loss rules, or selling an investment at a loss and repurchasing the same security within the next 30 days, as doing so would prevent you from claiming the loss and using it to offset any capital gains.
“You've got to be careful so you don’t inadvertently buy the investment back and ‘cancel out’ the loss,” adds Heath.
Calvert also notes that because it takes time to settle trades, don’t wait until the last minute to sell investments.
“Don’t wait until the 29th because it takes a couple days for your trades to settle. If you plan to sell something for a loss and realize that loss in this calendar year, make sure that your last trading day is actually Dec. 27, 2023.”
Author: Srivindhya Kolluru for The Toronto Star