Gearing Up For 2023
As we begin a new year, it's important to set financial goals and review your financial plan to make sure you're taking advantage of all the savings and investment opportunities available to you.
Two key details to keep in mind for the 2023 year...
The new TFSA contribution limit is $6,500. This means that you can contribute up to $6,500 per individual to your TFSA in 2023 without paying taxes on the investment income earned inside the account. It's important to note that if you haven't contributed the maximum amount in previous years, you may be able to contribute more than $6,500 in 2023 to catch up.
The deadline for RRSP contributions for the 2022 tax year is March 1, 2023. This means that you have until March 1st to make contributions for the 2022 tax year, which can be claimed as a deduction on your 2022 tax return. The contribution limit for RRSPs is 18% of your earned income from the previous year, up to a maximum of $27,830 for the 2022 tax year.
A Key Theme for 2023: Debt Reduction
As we had record increases in interest rates from central bankers in 2022, this means interest rates on most types of debt have increased proportionally. In Canada, rates on the following types of debt are as follows:
HELOC (Home Equity Line of Credit): 6.95%
Credit Cards: 20%
Mortgage Rates (Variable, 5yr): 6%
Mortgage Rates (Fixed, 5yr): 5%
Unsecured LOC (Line of Credit): 9%-13%
*Above rates are approximate and derived from the following sources: https://wowa.ca/line-of-credit-canada, https://wowa.ca/mortgage-rates, https://www.ratehub.ca/best-mortgage-rates/heloc
With rates at these levels, it might make sense to reduce debt depending on your circumstance. If you have debt and are wondering what the best option might be for your circumstance, please reach out to me! Factors that come into play are any non-registered assets you may have (taxable accounts), the interest rate on your debt, the tax deductibility of your debt, your risk profile, etc.
Business Owners & Tax Free Dividends
Capital dividends allow you to pay yourself tax free dividends from your corporation under certain conditions. Over the last year I have mentioned the benefits of these dividends and why it makes sense to focus on generating capital gains inside your corporation. If you are looking for an concise explanation of capital dividends, how to generate and pay them out to yourself, please check out the recent video I created on the topic.
Until next month,
Jonathan Adomait
Financial Advisor | CFP, B.Eng