2022 YEAR-END TAX PLANNING

As 2022 year-end approaches, now it's a good time to review your personal finances and think about any personal tax planning opportunities that may be available to you. Here is a checklist of some tax issues to help you be prepared for your annual personal income tax return.

Year-end points to consider:

• Rental Income
  • Did you rent any properties during the year to earn rental income?
  • Did you prepare a list of rental expenses that are deductible?
• Business Income
  • Are you self-employed or start a business?
  • Did you track the expenses incurred to earn business income?
• Investment Income
  • What type of investment income do you have?
  • Did you sell or transfer capital property? Should you sell investments with unrealized capital losses/gains?
• Registered Retirement Savings Plan (RRSP)
  • Did you check your RRSP contribution room?
  • Have you maximized your RRSP contribution?
  • When is RRSP contribution deadline?
• Tax Free Saving Account (TFSA)
  • Have you maximized your TFSA contribution?
• First Home Saving Account (FHSAs)
  • Are you planning to buy your first home after April 1, 2023?
  • Are you eligible for FHSAs contributions?
• Principal Residence
  • Did you sell your home or principal residence?
• Change In Use
  • Did you change your principal residence as rental property or change your rental property as principal residence?
• Moving Expenses
  • Did you move to work or to run a business at a new location?
• Charitable Donations
  • Have you made a charitable donation?
• Medical Expenses
  • Did you pay any medical expenses?
• Childcare Expenses
  • Did you pay to have someone look after an eligible child?
• Year End Expenses
  • What are year-end expenses you could pay before December 31, 2022, to be eligible for tax deductions?

Lets deeper dive on each point.

RENTAL INCOME

If you rent one or several rental properties in Canada or rented out a few rooms in your principal residence, you must include all the income on your tax return as well as you can also deduct rental expenses from your income for tax purposes.

• Expenses related to the Rental property can include:
  Advertising
  Insurance
  Interest payments on the mortgage
  Repairs, maintenance, and improvements
• Professional fees (property management, legal and accounting fees etc.)
• Management and administration fees
• Motor vehicle expenses
• Office expenses
• Property taxes
• Travel cost
• Utilities (Water, Electricity, and heat expenses)
• Landscaping costs
• Condominium fees
• Capital cost allowance (CCA)

If you may change the rental property as your principal residence in future, its better not to claim CCA as you will not allow to apply principal residence exemption when that the property will be sold.

BUSINESS INCOME

If you are self-employed as a professional, commission salesperson, farmer, fisherman, manufacturer, rental property owner, or have started any such business, then you must report all your business income earned.

When you are declaring all business income, you can deduct the related business expenses, including accrued ones. It is always advised to track on time all business expenses which are incurred to earn the business income. This will help not to miss any of those while filing tax return.

Some of the eligible business expenses:

• Cost of goods sold
• Property insurance
• Personal expenses
• 50% of meals and entertainment
• Limited convention expenses
• Home workspace expenses
• Vehicle expenses
• Capital cost allowance (CCA)
• Travel cost
• Utilities (Water, Electricity, and heat expenses)
• Office supplies
• Rental expenses
• Overhead expenses

INVESTMENT INCOME

Investment income including taxable amount of dividends from taxable Canadian corporations, interest and other investment income, taxable capital gains need to be reported on your personal tax return.

If you have taxable amount of dividends from taxable Canadian corporations, interest, and other investment income, T3/T5 tax slips will be received. You need to keep them for tax filing purposes.

If you sold or transfer capital property, 50% of the gain will be taxable and 50% of the loss will be allowed to against taxable capital gain to reduce the taxable income.

If you own investments with unrealized capital losses, considering selling them before December 20, 2022 to realize the loss (avoid superficial loss rules applied) and apply it against the net taxable capital gains you realized during the year or in the past three years.

If you carry unused capital losses from prior year, you could plan to sell investments with unrealized capital gains to utilize these losses.

REGISTERED RETIREMENT SAVINGS PLAN (RRSP)

An RRSP is a retirement savings plan that you establish, that CRA register, and to which you or your spouse or common-law partner contribute. You can find your RRSP deduction limit by going to CRA my account, or the RRSP deduction limit statement, on your latest notice of assessment of reassessment. Deductible RRSP contributions can be used to reduce your tax. Any income you earn in the RRSP usually exempt from tax if the funds remain in the plan; you generally must pay tax when you receive payments from the plan. You can contribute to an RRSP, PRPP or SPP until December 31st of the year you turn 71 years of age and when you have an available RRSP deduction limit.

The deadline to contribute your RRSP, PRPP or SPP or your spouse’s RRSP or SPP for 2022 taxation year is March 1, 2023.

TAX FREE SAVING ACCOUNT (TFSA)

A tax-free savings account is ideal for medium- or long-term savings projects. The returns generated in the account are not taxable, even if you make a withdrawal. Additionally, your money can be accessed at any time, which makes it an excellent emergency fund. You can contribute up to your TFSA contribution room. A tax applies to all contributions exceeding your TFSA contribution room, withdrawals will be added to your TFSA contribution room at the beginning of the following year

Any individual that is a resident of Canada who has a valid SIN and who is 18 years of age or older is eligible to open a TFSA. Any individual that is a non -resident of Canada who has a valid SIN and who is 18 years of age or older is also eligible to open a TFSA. However, any contributions made while a non-resident will be subject to a 1% tax for each month the contribution stays in the account.

The annual TFSA dollar limit for 2022 is $6,000.

FIRST HOME SAVING ACCOUNT (FHSAS)

If you are planning to buy your first home after April 1, 2023, you may be eligible for FHSAs Contribution that would be tax deductible.

The FHSAs offers prospective first-time home buyers the ability to save up $40,000 tax free.

To open an FHSA, you must:

• Be an individual resident of Canada
• Be at least 18 years of age
• Be a first-time home buyer, meaning that you or your spouse or common-law partner have not owned a home in which you lived at any time during the part of the calendar year before the account is opened or at any time in the preceding four calendar years.

The lifetime limit on contributions would be $40,000, which an annual contribution limit of $8,000. You may carry forward up to $8,000 of your unused annual contribution room to use in a later year.

Undeducted contributions could be carried forward indefinitely and deducted in a later tax year. Qualifying withdrawals are not taxable.

PRINCIPAL RESIDENCE

If you sold your home or your principal residence, you do not have to pay tax on any gain from the sale due to the principal residence exemption. To qualify for the exemption, you must report the disposition and designation of your principal residence on your tax return. Also, it's important that you keep any documents related to the sale. Any loss from the sale of principal residence is not allowed to be claimed as your home is considered as personal-use property.

CHANGE IN USE

Change in use may be considered to have sold your property. 50% of the gain may be taxable. Election could be made to save taxes.

If you change all of your principal residence to a rental or business operation, you can make an election and designate the property as your principal residence for up to 4 years. To make this election, you must report the net rental or business income you earn and cannot claim capital cost allowance on the property. To designate the property as your principal residence for up to 4 years, two following conditions are required to be met:

• You do not designate any other property as your principal residence
• You are a resident or deemed to be a resident of Canada

If you change your rental or business property to a principal, you may make an election to delay reporting the disposition of your property until you sell it to a third party. Making the election allows you to designate the property as your principal residence for up to 4 years before the property is as your principal residence.

MOVING EXPENSES

Moving expenses can be claimed in general for your eligible relocations. Eligible relocation includes you moved at least 40 kilometers closer to your new job, to carry on new a business or attend a post-secondary educational institute full-time. The amount you can deduct is limited to the amount you earn at the new location in the year or up to the amount of award or scholarship income received in the year. Unused deductions can be carried forward and deducted in the following year.

The following are the eligible expenses that may be considered:

• Transportation and storage costs
• Travel expenses
• Accommodation and Temporary living expenses for maximum of 15 days
• Cost of cancelling you lease for your old home
• Incidental costs related to you move
• Cost to maintain your old home when vacant(maximum of$5,000)
• Cost of selling your old home, such as advertising, legal fees, real estate commission, mortgage penalty, if any
• Cost of buying the newhome

With deductible expenses claimed, you should maintain related receipts, bills, proof of payments, mileage logs and possibly statements of reimbursement from your employer.

CHARITABLE DONATIONS

A donation is defined as a gift for which no consideration is given in return. Your donation can be money, or it can be anything else of value such as property, stocks, cultural and ecological gifts, etc.

Charitable donations made by you or your partner during the year should generally be added together and claimed on the income tax return of one spouse. Higher credit is available for donations over $200, therefore it is beneficial to combine the donations and claim them on one return. However, if your total donations are less than $200 there is no impact from claiming on one return.

If you receive something in exchange for your donation, such as tickets to a show, then the value of what you received must be subtracted from the amount you donated and you can only claim the charitable donation tax credit for the difference.

If you are donating certain publicly listed securities, your donation credit is based on the fair market value of those securities. Furthermore, you will not pay tax on any accrued capital gains on the donated securities.

Donations can also be carried forward for up to five years. The eligible amount of your gift is the amount shown on your charitable donation receipt. Make sure that you can provide official tax receipts as a piece of evidence.

MEDICAL EXPENSES

You can claim medical expenses for yourself, your spouse or dependent children under 18 years of age. These expenses maybe for your dental care, medical supplies, private medical insurance including travel and eye care. You may even claim medical expenses you paid outside Canada. For all the expenses, you can claim part of the expense that you or someone else have not been and will not be reimbursed for.

Common medical expenses you can claim are as follows:

• Attendant care and care in a facility, such as follows:
  • Full-time attendant care in a nursing home (no limit on the total)
  • Attendant care in homes for seniors, retirement homes, or other institutions
  • Part-time or full-time attendant care in a self-contained domestic establishment

Attendant care expenses can be claimed as medical expenses to a maximum of $10,000 per year if the disability tax credit is claimed. However, there is no maximum amount if the disability tax credit is not claimed.

• Care, treatment, and training, such as therapy, medical treatment, etc.
• Construction and renovation for persons who have mobility impairment
• Prescribed drugs, medications, and other substances

For persons who qualify for the disability amount, attendant care expenses may be claimed for:

• Full-time attendant care in a nursing home (no limit on the total)
• Attendant care in homes for seniors, retirement homes, or other institutions
• Part-time or full-time attendant care in a self-contained domestic establishment

Attendant care expenses can be claimed as medical expenses to a maximum of $10,000 per year if the disability tax credit is claimed. However, there is no maximum amount if the disability tax credit is not claimed.

When claiming medical expense, make sure to gather all supporting document to support your claim such as but not limited to receipts, prescription, certification in writing and disability tax credit certificate.

CHILD CARE EXPENSES

If you are the only person supporting the eligible child, you can claim childcare expenses you incurred while the eligible child was living with you.

There may have been another person who lived with you at any time in 2022 and at any time during the first 60 days of 2023 who was the eligible child's parent, your spouse or common-law partner, if you are the father or the mother of the eligible child or an individual claiming an amount for the eligible child the person withlower net income(including zero income) can claim the childcare expenses.

You can claim child care expenses that were incurred for services provided in 2022. These include payments made to any of the following:

• Caregivers providing child care services
• Day nursery schools and daycare centers
• Educational institutions, for the part of the fees that relate to child care services
• Day camps and day sports schools where the primary goal of the camp is to care for children (an institution offering a sports study program is not a sports school)
• Boarding schools, overnight sports schools, or camps where lodging is involved

The child must have lived with you or the other person when the expense was incurred for the expenses to qualify. Usually, you can only deduct payments for services provided in Canada by a Canadian resident.

You cannot claim payments for medical or hospital care, clothing. or transportation cost, fees that relate to education costs at an educational institution, such as tuition fees of a regular program or a sports study program, fees for leisure or recreational activities, such as tennis lessons or the annual registration for Scouts. You cannot claim expenses for which you or another person received, or is entitled to receive, a reimbursement of the child care expenses, or any other form of assistance not included in the income.

YEAR-END EXPENSES

You can deduct for certain expenses you paid by December 31, 2022 to report on your personal tax return. Therefore, it’s important to remember to pay investment fees, deductible legal fees and accounting fees, interest to earn investment income, interest on student loans and union and professional membership dues.

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