Financial Tips and Reminders for the New Year
Happy New Year!
As we enter 2024 it’s important that we take stock, examine our financial environment, and plan for the calendar year ahead to strategize on how we can increase our income and reduce our taxes. With the rising costs of living, higher interest rates, and persisting inflation it may feel like the economy and market are working against you, but by taking advantage of the following you can prepare yourself for when the market returns to “normal”.
Due to continued inflation, the annual TFSA limit for 2024 has increased from $6,500 to $7,000, meaning this amount can be contributed and grow tax-free. The advantage of this is that due to all interest, dividends, and capital gains being tax-free, you significantly improve your “real rate of return”. Your real rate of return is the actual return above the inflation net of taxes, and in the current inflationary environment, this is critically important to maintaining and increasing purchasing power.
Another important tool for the employed is RRSP contributions. To reduce taxes for the 2023 tax year, you can make contributions up to and including March 1st, 2024. Much like the TFSA, contributions to the RRSP grow tax-free, but carry the added benefit of also reducing your taxable income today, thus, reducing your overall tax bill. This is particularly important for those with taxable incomes above $100,000 in 2023 as your marginal tax bracket is then a hefty 43% on every extra dollar earned. If you have not yet maximized your contributions for 2023, there is still time. Your maximum RRSP room for the year can be found on your last notice of assessment (NOA) from CRA. We are also happy to help you calculate any remaining room if you have already made contributions to your RRSP/TFSA in 2023 but would like to maximize your unfulfilled room.
There is also a new government-sponsored First Home Savings Account (FHSA) plan in place for Canadians to take advantage of. This new plan is available to those qualifying as first-time home buyers which is defined as those not having owned a principal residence within the last four calendar years. Those eligible will be able to save up to a maximum of $8,000 in 2024 with contributions also being tax deductible just like a RRSP. This contribution room is above and beyond your RRSP room and as such your available RRSP room is not downwardly impacted by FHSA contributions, and further to this, contributions can be invested and grow tax-free as withdrawals are non-taxable. With the rising cost of housing, those eligible for this plan can shelter and grow their savings for a future home purchase.
There are other options for reducing your taxes and increasing your income through tax shelters, tax-efficient non-registered investments, as well as prudent financial planning. As we enter a new year, I and the team at Prittie Private Wealth are happy to provide guidance on all the above. By utilizing the tax advantages of the available strategies, you can save on taxes now while building wealth for your future tough economic times shall pass, but the long-term future is bright. Recall that when economic times are tough and stock markets are under pressure, history has proven time and time again that this is an excellent time to invest in quality businesses at discounted prices. This and proper financial planning are the foundation for wealth.
I look forward to working with all of you to build and preserve prosperous financial futures in 2024 and beyond. While Michael is retiring on December 31st, he has proven an excellent mentor and with me having the same qualifications and certifications, you are in excellent hands. As was the case with Michael, I also have the continued support of the same robust team of experienced professionals to assist me in providing added value in all the areas we specialize in.