More time-intensive philanthropic planning may be needed this year for people who are affected by changes to the alternative minimum tax rules that take effect on Jan. 1, 2024.Jacob Wackerhausen/AFP/Getty Images
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Every year, as the calendar turns to December, many advisors across the country scramble to implement year-end tax planning strategies for their clients. This year, consider starting the process earlier to maximize tax-saving opportunities, improve client service and benefit your business, say some advisors and tax experts.
“Everyone’s moving into holiday mode between Nov. 15 and Dec. 15,” says Julie Shipley-Strickland, principal, founder and senior wealth advisor with Julie Shipley-Strickland Wealth & Risk Management at Wellington-Altus Private Wealth Inc. in Calgary.
“I have quite a few snowbird [clients], so they’re heading down south; [and] my younger business owner [clients], a lot of them are in retail, so they’re really busy. They don’t want to be fielding a call from me on Nov. 25 [about] the capital loss for this year.”
Jennifer Dunn, tax partner at BDO Canada LLP in Charlottetown, adds that starting to consider year-end tax planning with time to spare means advisors can take a proactive and well-considered approach to tax management, identify and implement strategies that may not be available a few weeks from now, and reduce stress for themselves and clients.
“It gives individuals and businesses more time to consider their options, gather necessary documentation and make informed decisions,” Ms. Dunn says. “Planning well in advance ensures that these strategies can be executed effectively.”
Jacqueline Power, assistant vice president of tax and estate planning at Mackenzie Investments in Toronto, adds that “nobody wants to be in a situation in which you’re scrambling at the last minute. Planning earlier ensures that investors and advisors aren’t rushed to implement any of these strategies [and] aren’t missing any of the deadlines.”
Here are six areas of year-end tax planning that are best not left to the last minute.
1. Charitable donations
With a longer runway, advisors can help clients donate strategically, including by setting up in-kind donations of publicly traded securities. In addition, more time-intensive philanthropic planning may be needed this year for people affected by changes to the alternative minimum tax rules that take effect on Jan. 1, 2024.
Well-planned charitable donations can be particularly beneficial for corporations, Ms. Power says.
“If the corporation makes an in-kind donation to a charity, the capital gains inclusion rate, as with individuals, is zero [and] the full amount of the gain gets credited to the capital dividend account,” she says.
“Essentially, this allows the corporation to pay capital dividends, which are tax-free dividends, out to shareholders.”
2. Capital gains or losses
Taking time to assess projected gains and losses in clients’ non-registered accounts allows strategic tax-loss harvesting with the ability to carry any excess losses back three years or forward indefinitely. With corporate accounts, it’s important to watch out for gains approaching the $50,000 limit, above which they may start to encroach on the small business deduction.
The last day for trades to settle is Dec. 27, 2023, but Ms. Shipley-Strickland generally evaluates non-registered and corporate accounts in October and then executes trades in the first half of November.
3. Disability planning
Contributions to maximize registered disability savings plan (RDSP) grants must be made before year-end. On-time RDSP contributions are especially critical for individuals turning 49 in 2023 because this is their last opportunity to receive RDSP grants, including entitlements from previous years.
Also keep in mind that applying for the disability tax credit takes time, including arranging for a medical practitioner to submit a form to the Canada Revenue Agency (CRA). Clients who believe they’re eligible should start the process as soon as possible.
Ms. Dunn says the CRA’s goal is to process the form within eight weeks – but now is the time to get the ball rolling. Ideally, clients want approval in hand by the time they file their 2023 taxes to avoid tax assessment delays.
4. Income planning
Individuals receiving bonuses or severance packages may be able to control the payment timing – but it may take time to work out if it makes sense to defer to 2024 and negotiate a delay. Start those conversations as soon as possible, Ms. Dunn says.
Meanwhile, advisors should encourage business owners to meet with their accountants to plan the mix of compensation (salary and dividends) they want to receive from their corporation during the year.
Getting meetings set up in November means any decisions can be well-thought-out and executed calmly, Ms. Power says.
5. Additional business planning
Businesses that are considering purchasing depreciable assets should leave enough lead time to get those assets shipped and put to work in the business before Dec. 31. That’s because some depreciable assets can be expensed immediately provided they’re available for use by year-end.
In addition, small businesses that are considering incorporating to take advantage of lower corporate income tax rates in 2024 should allow time for the incorporation process itself, which can take several days, and the transfer of business assets into the corporation, which can take significantly longer.
Assets still in limbo on Dec. 31 may not benefit from lower rates in 2024, Ms. Dunn says.
Incorporated businesses should also consider the impact of an amendment to the general anti-avoidance rule (GAAR) set to take effect in 2024. GAAR’s primary purpose is to prevent taxpayers from engaging in tax avoidance schemes that, while technically legal, are contrary to the intent and spirit of tax laws.
Surplus strips are a common tax planning strategy addressed in the strengthened GAAR.
“If a business owner was contemplating a surplus strip, they should consider doing it soon as opposed to later,” Ms. Dunn says.
6. Transitioning retirement accounts
One more year-end task Ms. Shipley-Strickland gets out of the way well in advance is the transition of a registered retirement savings plan (RRSP) to a registered retirement income fund or a locked-in retirement account/locked-in RRSP to a life income fund, restricted life income fund or locked-in retirement income fund. She’s found the best time to start tackling this is in June.
“We tend to find that clients are substantially happier when we do it in the summer,” she says. “We have plenty of time to meet with them. We can walk them through everything properly.”
It balances out some of the workload with the staff, she says.
“We’ve actually gotten a few referrals from it as well,” she adds. “Exceptional client service leads to growth within your business.”
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