Weekend Reading – Important numbers for 2023 edition
I hope you are having a happy and enjoyable holiday season…
Welcome to my final Weekend Reading edition for 2022 – a look ahead at your important numbers for 2023 and other saving and investing tips to consider.
New Year Financial Checklist
As you can appreciate, there is a lot of financial ground that any new year can cover.
So, consider this new year and this Weekend Reading edition a decent starting point for some financial checklist items, including the important numbers for 2023 that follow.
To keep you focused and organized this new year:
- Revisit your cashflow. Understand where your money is coming in from and where that money is going. Where possible over the coming year, try and grow the gap between income earned and expenses. (We’ll try and do that more often in 2023 ourselves as we strive for semi-retirement in the coming year or so…)
- Set up automatic savings for investment purposes. Assuming you have the aforementioned positive cashflow gap, invest for long-term wealth-building (as you pay down any remaining debt). Ideally, you aspire to be out of debt sooner than later since debt obligations unfortunately pay other people first. (We hope to be out of mortgage debt in the coming 15-16 months.)
- Consider investing inside your TFSA, first. You’ll read why more on that below, but the start of any new year is a great time to add more money and invest long-term in a tax-free investment account. (We’ll be maxing out contributions to our TFSAs next week!)
- Consider investing inside your RRSP after your TFSA is maxed. In doing so, you can lower your taxable income AND defer taxation for further wealth-building over time. (We’ll contribute to our RRSPs this spring, with the goal to max out those accounts before the summer.)
- RESP contributions are amazing as well. If you have kids, after your own TFSA is maxed out at least for your financial future, it’s tough to beat the RESP (Registered Education Savings Plan) to support their financial needs for higher education. A reminder that with your annual contribution the government will chip in an additional 20% up to a maximum of $500 per year per child ($7200 total per child over the RESP lifetime).
- Revisit Wills and life insurance needs. These are not sexy personal finance topics like juicy compounding dividends and distributions garner every month but these are foundational, very important personal finance *matters that should never be overlooked! (*I have a standing discount with LegalWills to consider that gives you 15% off any product with my personal promo code.) (We need to do this ourselves.)
Alright, let’s get into some important numbers and some calls to action for this upcoming tax year.
Weekend Reading – Important numbers for 2023 edition
1. Contribute to your Tax-Free Savings Account (TFSA) this new year
You might already know by now that a Tax-Free Savings Account is not just a savings account – even though I personally hate the name.
(I even suggested some name changes to various financial accounts 10 years ago…)
Thankfully for all adult Canadians, the TFSA can hold stocks, low-cost Exchange Traded Funds (ETFs) and more. The beauty of this account: all the gains you make inside this account are tax-free and should you want to make any TFSA withdrawals, well, that happens tax-free too!
TFSA limit: The 2023 TFSA contribution limit increased for the first time since 2019 to $6,500 (from $6,000). The cumulative TFSA limit is now $88,000 for someone who has never contributed to a TFSA, and has been a resident of Canada and at least 18 years of age since 2009.
Here are the dollar amounts by year:
|For 2009, 2010, 2011 and 2012:||$5,000|
|For 2013 and 2014:||$5,500|
|For 2016, 2017 and 2018:||$5,500|
|For 2019, 2020, 2021 and 2022||$6,000|
Assuming you have the contribution funds available, early each year, I believe it makes great sense to strive and max out your TFSA contributions in January to get your money compounding away early and throughout the year.
Sure, you can DCA (Dollar Cost Average) but statistics tell us that historically Lump Sum Investing (LSI) works out for us more often than not.
A nice reminder there is this comprehensive post about TFSAs so you can take full advantage of its power over time!
Everything you need to know about TFSAs – including the TFSA contribution room is here.
2. Contribute to your Registered Retirement Savings Plan (RRSP) this new year
Regardless if you prioritize your TFSA over your RRSP like I do, the facts are – saving and investing inside your Registered Retirement Savings Plan (RRSP) remains one of the best ways to fund your retirement.
RRSP dollar limit: The registered retirement savings plan dollar limit for 2023 is $30,780, up from $29,210 in 2022. Of course, the amount you can contribute to your RRSP is limited to 18 per cent of your 2022 earned income, which includes (self) employment and rental income, less any pension adjustments, up to the current annual dollar limit.
If you do choose to max out your RRSP contributions over your TFSA, that’s fine, just remember this:
Managing the refund well is the linchpin in any RRSP vs. TFSA debate!
From my article:
“If you’re going to put money in a registered retirement savings plan and “blow the refund on something stupid,” then a major advantage of the RRSP – the immediate tax benefit – is lost…”
3. Be mindful of the inflation adjustment factor for taxation this new year
Most (but not all) income tax and benefit amounts are indexed to inflation. In November 2022, our Canada Revenue Agency announced the inflation rate to be used to index the 2023 tax brackets and amounts would be 6.3 per cent.
This inflation factor might have a few implications for you:
3a. Increases to the tax-bracket thresholds and various amounts relating to non-refundable credits take effect on Jan. 1, 2023. But increases for certain benefits, such as the GST/HST credit and Canada Child Benefit, only take effect on July 1, 2023. This coincides with the beginning of the program year for these benefit payments, which are income tested and based on your prior year’s net income, to be reported on your 2022 tax return due this spring.
3b. All federal income tax brackets for 2023 have been indexed to inflation using the 6.3-per-cent rate.
3c. Each province also has its own set of provincial tax brackets, most of which have also been indexed to inflation, but using their respective provincial indexation factors.
4. Be mindful of new CPP and OAS contributions and limits this new year
For this year:
CPP (QPP) contributions: The contribution rate for 2023 is 5.95 per cent (6.4 per cent for the Quebec Pension Plan) with maximum contributions by employees and employers set at $3,754.45 ($4,038.40 for QPP) in 2023, based on the new yearly maximum pensionable earnings of $66,600 (with a $3,500 basic exemption.)
Old Age Security (OAS): If you receive OAS, the repayment threshold for 2023 is set at $86,912, meaning your OAS will be reduced in 2023 if your taxable income is above this amount.
In running hundreds of cashflow and retirement income planning scenarios for Canadians, link below (!), I’ve found that depending on income needs and wants of course, the “sweet spot” for many Canadians to enjoy retirement spending while keeping taxation consistently low is around an average monthly spend of about $5,000 – $6,000 (after-taxes).
You can read some related retirement income case studies here:
How much do you need to have saved to retire on $5,000 per month?
How much do you need to retire on $6,000 per month?
Want any help with your retirement income planning?
This is a great time to remind you I run a very Helpful Site called Cashflows & Portfolios that can help answer retirement income planning and cashflow management questions.
Subscribe for free and hit me up with a comment on one of our case studies!
5. Consider using the First Home Savings Accounts (FHSA) this year
Legislation to create the new tax-free FHSA was recently passed, and this account could be ready for use early next year.
In Budget 2022, the government proposed the introduction of the Tax-Free First Home Savings Account (FHSA). This new registered plan would give prospective first-time home buyers the ability to save $40,000 on a tax-free basis. Like a Registered Retirement Savings Plan (RRSP), contributions would be tax-deductible, and withdrawals to purchase a first home—including from investment income—would be non-taxable, like a Tax-Free Savings Account (TFSA).
The government expects that Canadians will be able to open and contribute to an FHSA at some point in 2023. No matter when this happens in 2023, Canadians would be allowed to contribute the full $8,000 annual limit in that year.
To open an FHSA, an individual must be a resident of Canada and at least 18 years of age. In addition, an individual must be a first-time home buyer, meaning that they have not owned a home in which they 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. For this purpose, ownership is defined broadly and includes beneficial ownership, but excludes a right to acquire less than 10% of a qualifying home.
An FHSA of an individual would cease to be an FHSA, and the individual would not be permitted to open an FHSA, after December 31 the year in which the earliest of these events occurs:
- The fifteenth anniversary of the individual first opening an FHSA; or
- The individual turns 71 years old.
Any savings not used to purchase a qualifying home could be transferred on a tax-free basis into an RRSP or Registered Retirement Income Fund (RRIF) or would otherwise have to be withdrawn on a taxable basis. Individuals that make a qualifying withdrawal could transfer any unwithdrawn savings on a tax-free basis to an RRSP or RRIF until December 31 of the year following the year of their first qualifying withdrawal.
The lifetime limit on contributions would be $40,000, with an annual contribution limit of $8,000. In other words, individuals would be subject to the lesser of their annual limit and remaining lifetime limit. The full annual limit would be available starting in 2023.
Like a RRSP, contributions to an FHSA will be tax deductible, but withdrawals to purchase a first home, including from any investment income or growth earned in the account, will, like a TFSA, be non-taxable. The new legislation confirms that a first-time homebuyer can use both the FHSA and the existing Home Buyers’ Plan to purchase their first home.
More Weekend Reading…
Ben Carlson offers up some reminders why you (and I) should invest in the stock market this year.
“Owning shares in the stock market gives you access to the profits, dividends, sales, growth, innovation and ingenuity of the biggest and best companies in the world.”
In case you missed it, you can learn how to skim the index and build your own fund of stocks here.
Want diversification? A reminder that Canada owns just a very small portion of the world of stocks – a great visual from the folks at Visual Capitalist in this link.
“Just five countries make up more than half of the world’s entire GDP in 2022: the U.S., China, Japan, India, and Germany. Interestingly, India replaced the UK this year as a top five economy.”
I’m putting the keystrokes on my final 2022 dividend income update tally in the coming days, but before that post, check out my November income update below. Our goal is to surpass $30k per year in annual dividend income (from a few key investment accounts) in just a few short months. I will keep you posted of course!
A reminder about my upcoming event with TD! Free!
Check out my upcoming chat with the folks at TD Bank where some of these Laws of Wealth factor into my retirement income drawdown plan.
Just click this link or the image below to register for the free event in January!
Hi Mark: The best of the year and I hope ’23 is a better year but I’m afraid they are calling for a recession. In that case stocks should be down and more chance to buy good stocks. One I have been watching is FN-T. My nephew mentioned it to me in ’19 and I looked it up but didn’t buy it. That was a mistake as it was just under $30.00 and it took off into the mid $40.00 range. I looked at lately and it is around $36.50 with a $2.40 dividend and a yield of 6.6%. I don’t think Steve Smith, one of Canada’s many billionaires will let his company go down so it should be safe. Today $6500.00 will go into my TFSA. With kids there is always a cost, but they bring a lot of joy also. I have four nieces and nephews and they all have their sense of humour. I have helped them out on their homes and my brother gives them money for their kids RESP. It is this time of year that I’m thankful that I waited to start a RRSP and got laid off a few years later. A large carryover into a RRIF would mean a large sum coming out in Dec. for tax in April. Remember it’s not what you make, it’s what you keep.
Great stuff, and Happy New Year Ronald to you and your family.
FN is interesting, nice growth story for sure over the last 5-years including higher yield – which is rare. I don’t own any yet but could be worth a look 🙂
Awesome that you have the wealth accumulated to support your nieces and nephews financially – outstanding.
All the best to you, Mark. Hope 2023 will not be a repeat of 2022 with meltdown in global stocks!!!!
Ha, yes, wild year from 2022!
Stay well and success back to you in 2023!
Your thoughts on Canadian Tire CTC as a dividend stock. It looks like a buy if you want to buy low and the yield is reasonable
Ya, I’ve looked at it for sure, a great brand too and potentially a good entry point given the stock is down quite a bit in the last 5-years.
Yield is now over 4.5% I recall. I think they are under various market pressures to be honest. I don’t own it at this time. Friendly dividend history and somewhat recession proof since folks buy stuff from there all the time.
I hold CTC and thought about buying more a few months back. I like shopping there which always informs part of my investment decisions. But then I read a bit more and it seems that a large chunk of their revenue is from their financing business and analysts were not so sure about its strength going forward.
I will look into it more later in the year, though.
Happy New Year Mark. All the best to you and your family in the year ahead.
I have always deposited our TFSA money in January, but some years I have been burned by investing it in that month. Some years back (quite a few) all the pundits said that Japan was the place to be that year, so I bought a Japan ETF. It is finally back to what I paid and boy, that was quite a few years back.
So many decisions all the time!
Ha, yes, all decisions are perfect and easily seen in hindsight!
I know for sure, we’ll deposit our $$ early in Jan. 2023 for the TFSA and likely buy some assets in a few weeks. Some BCE is on my initial list.
Happy New Year back! 🙂
I just bought more BCE myself last week.
Even though not required yet, I do an RRSP withdrawal every year, hoping that minimizes taxes going forward. Plus I need that lump sum percentage tax taken off the top, to have enough income taxes paid for the year. That stuff gets complicated when income is mostly dividends and capital gains that you don’t control.
ugh, I’m trying to make financial affairs more straightforward but it isn’t easy. Its a work in progress.
Gotcha. I am likely to buy more BCE inside the TFSA in the coming days. New contribution room today 🙂
I will make slow RRSP withdrawals in my 50s and 60s to avoid having a sizeable RRIF in my 70s. I, ideally, want all RRSP/RRIF assets gone by early 70s with money either spent and/or moved into TFSA over the coming decades. I’m hoping for a combintation of both.
Hi Mr. CBB/Mo, I also have a daughter with autism and wanted to give you a heads up about the RDSP (Registered Disability Savings Plan). The only banking institution that I could find that allows the purchase of lower fee investment products in an RDSP is through TD Direct Investing buying their (lower fee) TD e-series funds. All the other banks only allow the purchase of high fee investment products in their RDSPs (despicable). Cheers, Alice
you can also invest in Stocks or ETF’s with the TD Direct Investing Account set up for the RDSP. I wasn’t sure based on your post if you were aware of that or opted to go with their E Series funds.
Thanks, Sue. Great stuff.
Here’s to looking forward to better market conditions next year!!
A couple of points about the FHSA that maybe you can clarify?
1) If someone chooses not to purchase a home, it sounds like they DO NOT need RRSP room to transfer out of the FHSA and into their RRSP. That’s a huge safety net for those that are unsure of what they might do, but want to get saving right away. It could also be a RIF, and not necessarily an RSP.
2) My understanding is a person could setup an FHSA, and transfer in holdings from an RRSP without any tax consequences. Such a transfer would permanently remove the RRSP contribution room (but as per my #1 it can always go back down the road).
3) Based on my research, I think there is one correction required. It will NOT be possible for an individual to leverage BOTH the HPB and the FHSA for the same home purchase. But, I assume with a couple, one individual could use the HPB and one could use the FHSA.
I took this information from here:
Interaction with the Home Buyers’ Plan (HBP)
The HBP would continue to be available as under existing rules. However, an individual would not be permitted to make both an FHSA withdrawal and an HBP withdrawal in respect of the same qualifying home purchase.
Perhaps what I was looking at is out of date?
Awesome to hear from you, James 🙂
On the programs, here is my source:
“Prospective homeowners will be able to access both the Home Buyers’ Plan (HBP) and the new tax-free first home savings account (FHSA) when purchasing a home if legislation to implement the FHSA is enacted. That legislation, Bill C-32, passed second reading in the House of Commons yesterday. The bill removed wording from draft FHSA legislation, released in August, that would have limited qualifying purchasers from accessing both programs for the same home purchase.”
I will do my best to answer, still a new account that doesn’t apply to me 🙂
1) If you don’t use the FHSA, yes, you can use the funds still.
See here for a great Q&A:
2) “My understanding is a person could setup an FHSA, and transfer in holdings from an RRSP without any tax consequences.”
This seems to be a loop-hole of sorts that the government doesn’t care about too much – although the RRSP contribution room would need to be available is my assumption.
3) See above.
How are your holidays James? Buying anything for your TFSA in 2023? 🙂
I took this information from here:
Thanks for the details Mark! My daughter will be well positioned to take advantage of both plans.
As for our TFSA, it’ll be all BCE or ENB in mine and a bit of sprinkling across BNS, CM, BCE, and POW for my wife. In her case it’s an attempt to improve the DRIP on her holdings. By topping each one up she will DRIP more shares and leave less cash sitting around.
Back to work for me next week but we’ve had a good break with family. Happy New Year!
You’re a wise investor and no doubt your daughter will benefit from that expertise!
Yes, my DRIPping = money that makes money can make more money 🙂 Tell her My Own Advisor said that. LOL. This is proof over time!
Happy 2023 James and see you around the site or in my inbox!
Happy New Years,
I signed up for the webinar. We don’t lump sum our TFSA, but I have asked our advisor about it in the past. Since we have the cash, we might as well pay the $6500 in January and get it over with. Question: How would your financial journey have changed had you had a child or maybe two? I’m working on a post about the differences it would have made to our finances and investing power. I wouldn’t change a thing but the argument used to come up that we were savers because we had no kids. I think to a certain degree, that helped, but there’s much more than meets the eye. Even now, as our son, as diagnosed with ASD (Autism) the costs have risen exponentially, which has put a dent in our savings ability. Looking forward to your webinar.
Very nice to hear from you, Mo.
Gosh, great question. I’m sure it would change quite a bit to be honest.
I should tackle that in a post.
Kids are a lifestyle and financial decision and then some IMO.
I hope your son is doing well, I can appreciate that is challenging diagnosis.
Take good care and write whenever of course!
Hello Mr CBB,
Do you have a Disability Tax Credit application submitted as of yet for your son?