‘Tis the Season

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   By Guest Blogger Tatiana Enhorning

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As we gather with loved ones this holiday season, it is worth remembering all of the savvy ways we can give back as well. ‘Tis the season to get on track for the end of the year.

Giving to charity:

If you are donating to a registered charity before the end of the year, you’ll receive a donation tax credit for the 2022 tax year. Any eligible amounts donated above $200 qualifies for a higher federal credit at the rate of 29% (up to 33% for high income earners) versus 15%. Provincial tax credits are also available, and the rates generally increase at the threshold of $200 as well. This is a non-refundable credit and can be transferred between spouses or common-law partners. If not used in the year of the donation, it can be used in the next five following years.

If you hold securities which have appreciated in value, donating them in-kind is a very tax-efficient way to give back. Instead of selling securities to give cash, consider giving an in-kind donation instead. By directly donating publicly traded securities or funds instead of cash, you will receive a donation receipt equal to the value of the investment at the time of the donation, plus any resulting capital gains will be exempt from tax.

Giving to children:

If there are years in which you have not maximized the full annual Canada Education Savings Grant (CESG), you can still receive grants for the current year as well as one missed year at a time, through additional contributions. But you may not contribute more than the lifetime contribution limit of $50,000 for each beneficiary or the lifetime CESG maximum of $7200. If parents and grandparents are both contributing to RESPs, ensure to track these maximums carefully.

If you would like to gift cash, transferring an investment that has dropped in value to a minor child before year-end, will trigger a capital loss on disposition, which can offset capital gains realized this year or potentially be carried back to any of the previous three years. By doing this, you can transfer the tax liability for any future growth of the investment to the minor child.

Attribution rules do not apply to capital gains realized by minor children, but attribution will apply for dividends paid, for example, on shares transferred. There are extra benefits available for lower-income families, and some provinces have additional incentives to promote saving for education and training.

Giving to yourself:

Don’t forget to pay your future self! As always, it’s important to weigh the flexibility offered by the TFSA versus the tax deductibility of a RRSP contribution. Timing, age, and marginal tax rates are additional factors to consider, keeping in mind that while RRSP/RRIF withdrawals are fully taxable, TFSA withdrawals are tax-free. If you plan to withdraw funds from your TFSA in the near future, consider doing so before the end of 2022 so that you can maximize TFSA room again in the New Year.

If you are contributing to your RRSP, it’s a good idea to make this contribution as soon as possible so that your money can start working for you. Markets have significantly corrected in 2022, so by making your contribution early, you may benefit from potential market upswings.

Before contributing to an RRSP, consult your latest Notice of Assessment to find the “available contribution room” (not deduction limit). If you accidentally exceed the contribution room, CRA charges a monthly penalty. Contributions can be made in cash or by transferring investments in-kind from your non-registered account, but this will be considered a deemed disposition, generating either a realized gain or loss. A capital loss generated on an investment transferred into a RRSP would be deemed as zero and cannot be used to offset capital gains at any time.

If a spouse or common- law partner has passed away in 2022 and they had unused RRSP contribution room this year, the executor of the estate should consider making a final contribution to a spousal RRSP by March 1, 2023. This will provide tax savings for the deceased, as the RRSP contribution can be deducted against income on the deceased person’s final tax return.

If you are contributing to a spousal RRSP before year-end, you can minimize the possibility of having the attribution rules apply on any future withdrawals. For example, if a spousal RRSP contribution is made in 2022 and there are no further contributions in the next two years, your spouse or common-law partner can withdraw funds from the spousal plan and pay tax on the income as early as January 1, 2025. But if a spousal RRSP contribution is made in January 2023, then your spouse will have to wait until January 2026 before they can withdraw funds without the attribution rules applying. Note that spousal RRSP contributions are available as long as the recipient spouse/ common-law partner doesn’t turn 72 in the year (regardless of the age of the contributing spouse).

Despite the possibility of income splitting being now available, contributing to a spousal RRSP can give withdrawal flexibility.

Happy New Year!

Tatiana Enhorning is a Financial Advisor with Turner Investments. She builds and maintains portfolios for clients across Canada, and has been in the business as an asset manager for more than a decade.

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About the picture: “Here is a picture of my partner,” writes Brenda in the Yukon, “as Garbage Truck Santa (you can google this). Have a wonderful Christmas and thank you for you blog!”