Many items that are creditable or deductible for tax purposes must be paid by the end of the year. These amounts include alimony and maintenance, childcare expenses, investment counsel fees, professional dues, charitable donations, medical expenses, and political contributions. To ensure that you will benefit from the tax deduction or credit in 2023, be sure that you pay these amounts by Dec. 31.
Consider donating securities
If you plan to donate money to a registered charity, you should consider donating publicly listed securities you own instead of cash. If there is an accrued gain on your securities, donating the shares directly to the charity can save on capital gains taxes that you would otherwise incur. For more information on this tax planning strategy, read our article How donating securities to charity saves you tax.
In addition, changes to the Alternative Minimum Tax (AMT) are expected to come into effect in 2024. While the donation of publicly listed securities will normally result in no capital gain for income tax purposes, the proposed changes to AMT include 30% of the capital gains on publicly listed securities in the calculation used for alternate minimum taxable income. In addition, under the AMT proposals, there will be a reduction of the donation tax credit allowed in calculating AMT to 50% of the credit otherwise allowed. This means that for individuals considering making significant charitable donations, it may be advisable to consider doing so in 2023 when the current rules would not create an AMT issue. To see how the new rules could impact you, read our article: Alternative Minimum Tax changes are coming, and speak with a BDO tax advisor.
Manage your medical expenses
In the case of medical expenses, only amounts exceeding $2,635 (limit may vary by province or territory) or 3% of net income (whichever is less) are eligible for a credit. In Quebec, eligible medical expenses must be reduced by 3% of family income.
If your medical expenses for the current year are already over the threshold and you anticipate that you won't have medical expenses above next year’s threshold, consider paying now for additional expenses that will arise in the near future.
Although most medical expenses are only paid as the medical services or supplies are required, some can be paid in advance. Glasses and contact lenses are two common examples. If you're paying for a major expense such as braces on an instalment basis, consider paying the balance owed early to maximize your medical credit claim.
On the other hand, you may have no medical expenses that can be paid in advance. In that case, keep in mind that you can claim eligible medical expenses paid in any 12-month period ending in a given year. To further clarify, consider the following scenario:
- your medical expenses incurred in the 2023 calendar year don't exceed the threshold,
- you need major dental surgery,
- those dental procedures will run from October 2023 to March 2024,
- the total cost will be about $5,000, split evenly between 2023 and 2024; and
- your other eligible medical expenses will total about $1,000 in each of 2023 and 2024.
In this scenario, you wouldn't claim any medical expenses in 2023, and you could choose the 12-month period ending on Sept. 30, 2024, as the period to claim medical expenses on your 2024 income tax return. You can then claim all of the dental expenses incurred over the annual threshold, plus the other $1,000 of regular medical expenses incurred in the 12-month period ending Sept. 30, 2024. Note also that medical expenses eligible for the tax credit evolve over time, and you should check the CRA website for a list of common medical expenses that qualify for the credit.