As an individual, any interest you earn is normally taxed in the year you receive it. If you are buying a short-term investment that will mature towards the end of the year, consider instead buying a similar investment that matures early in the next year.
For example, suppose you are buying a three-month Treasury bill in late September 2023 for $79,000, and it will mature at $80,000 in December, effectively paying you $1,000 in interest. That $1,000 will be counted as 2023 income. If you can get the same interest rate for a T-bill that runs just over three months and matures in January 2024, the $1,000 will not be reported as income until your 2024 return, with the tax payable by April 30, 2025. If you are paying $500 in tax on the interest, you will have the use of that $500 for an extra year by deferring the investment maturity date.
As well as postponing the amount of tax you pay, reducing your income in this way will also reduce any instalments you must remit to the CRA each quarter.
Obviously, tax should not be your only consideration when making investments. But other things being equal, look for investments that pay interest after the end of the year.
You cannot defer tax for more than one year with this technique. If you buy an investment that accrues interest and does not actually pay the interest to you, you are required to report the accrued interest annually as if you had received it on the anniversary of your purchase. Suppose, for example, you buy a 4-year term deposit with your $79,000 in September 2023, and it accrues interest of $4,000 a year, giving you $95,000 back in September 2027. You will have to report $4,000 as interest income each year beginning with your 2024 return, even though you have not yet received the money.
