Year-end tax tips for 2024

These smart moves can help you avoid overpaying on your taxes.

December is a time to relax, enjoy friends and family and maybe indulge in a few too many treats – it’s not usually when you think about taxes. While you should take a few moments for yourself, investing a little effort now in organizing your financial affairs can go a long way to ensuring you don’t end up overpaying on your taxes.

By avoiding the spring crunch, you have more time to find opportunities to minimize your 2024 tax bill – and that’s especially true this year. Ottawa made some significant tweaks to the tax code, so there’s added incentive to make sure your taxes are in order.

Here are a few things to keep in mind when optimizing your tax bill this year.

Balance capital gains and losses.

December can be a good time to rebalance a portfolio in a non-registered account by selling stocks to match up capital gains with capital losses. But if you have a large capital gain this year, you may want to figure out your potential tax bill before you sell. Proposed changes to the capital gains inclusion rate may result in some successful investors facing a stiffer tax bill than they would have a year ago.

Under the proposed change, which applies to gains realized after June 25, 2024, 66.6% of any capital gain above $250,000 will now be subject to tax, up from 50%. The inclusion rate for capital gains below the $250,000 threshold remains at 50%. Although the higher inclusion rate is meant to target higher net-worth individuals, the rules could affect a range of Canadians, as it would also apply to the sale of a secondary property, like a cottage.

Of course, if you have realized capital gains this year, you could offset the associated tax liability by selling securities with accrued losses before the end of the year and try to reduce the gain below $250,000. Keep in mind that a trade must be settled in the 2024 calendar year to be considered a 2024 disposition. Assuming a one-day settlement – which is also new this year – a transaction must be initiated by December 30. Also, be aware of the superficial loss rules, which deny a loss if you or an affiliated person repurchases the disposed investment within 30 days of the original sale.¹

Be mindful not to make changes to your investments purely for tax reasons. The merits of your investment should trump any tax considerations, so talk to your advisor or tax planner about which investments to sell.

When you realize a capital gain matters.

Deferring the realization of capital gains to 2025 is another way to potentially minimize taxes. If a gain is realized in 2024, then tax on that gain would be due by April 30, 2025. If you wait until January to sell, then you won’t have to pay tax on that gain until April 30, 2026. Keep in mind that if you think you’ll have a lower marginal tax rate in 2025, the tax on the deferred capital gain will also be lower. If you expect to be in a higher tax bracket next year, then your capital gains tax will also be higher, which may be a reason to consider accelerating capital gains. Likewise, because of the proposed capital gains inclusion rate, if you anticipate you are going to have a capital gain of more than $250,000 next year, it may make sense to realize some gains now to minimize your future tax bill.

Carry-back and carry-forward rules can soften the impact of a capital loss.

One advantage of capital losses is that they can be used to offset capital gains accrued in other years, including previous reporting periods. While the current year’s capital losses must first be applied to this year’s capital gains, any remaining losses can be carried back to offset capital gains earned in the past three years. To illustrate, 2024 losses would first be applied to 2024 capital gains before being carried back to offset gains in 2021 through 2023. While losses can only be carried back for a maximum of three years, unused capital losses can be carried forward and applied to capital gains in any future year.

Check your instalments.

If you pay instalments, you’ll receive a payment schedule from the Canada Revenue Agency (CRA) earlier in the year. The schedule is based on your previous year’s income. December 15 is the deadline for your final quarterly tax instalment payment, so it’s important to make sure you’re not overpaying.

For example, if your income is heavily dependent on investments, but income from those assets has decreased in 2024, then you may owe less tax this year. That decrease in investment income won’t be reflected on your instalment schedule. To avoid possibly overpaying, carefully estimate your 2024 income and then make a final payment based on that calculation. The only caveat is that if your estimate is incorrect and you underpay income taxes for the year, you may be charged interest and penalties. Nevertheless, it is worth making the estimate to avoid overpaying. Although a tax refund is always enjoyed, a large refund doesn’t constitute good tax planning, given the loss of cash flow from mid-December until you receive your refund.

Pay expenses before year-end.

Certain expenses must be paid before December 31 if you want to claim them on your 2024 tax return. Some of these include interest, investment counsel fees, child care expenses, accounting fees and professional dues. Similarly, expenses that can be claimed as tax credits for 2024 must be paid by the end of the year, including charitable donations, political contributions, tuition fees and medical expenses. Depending on anticipated income in 2025, you may want to consider paying these expenses by December 31 to benefit from the tax deduction or credit in 2024, rather than waiting until next year.

Work from home? There may be deductions for that.

Working from home may be one of the enduring legacies of the pandemic. If you are in this situation, you might want to consider the deduction for workspace-in-home expenses. The workspace must be either:

• the place where you mainly do your work (more than 50% of the time), or
• used exclusively for earning employment income, and used on a regular and continual basis for meeting customers or other persons in the course of performing your job.

This deduction may be available to you if your contract of employment requires you to pay the expenses, and the expenses were not reimbursable by your employer. From 2020 to 2022, the CRA offered a simplified method to make this claim, but you now have to file according to the detailed method. As part of this process, your employer will have to complete and sign Form T2200 or Form T2200S before you can claim this credit.

Common examples of deductible expenses include office supplies, long-distance phone calls, heating bills and a portion of your rent related to the home office. However, the cost of items such as furniture and computer equipment cannot be deducted (nor can a portion be claimed as deductible depreciation). Deductible employment expenses are a deduction on your personal income tax return.

As with all tax deductions, remember to keep track of your expenses. Having a paper trail of the receipts is important if you are audited and need to prove the deduction.

Gift securities instead of cash.

If you are planning to make a charitable donation, consider donating publicly listed securities or mutual funds instead of cash. This strategy will allow you to claim the full value of the gift as a donation without the realized capital gain being subject to tax. Given capital gains over $250,000 are now subject to a higher inclusion rate, this could be a way for some investors to better manage their tax bill. If you plan to claim the donation credit on your 2024 return, you must make your donation by December 31 – or earlier, if possible. The administrative process for donating securities in kind can take a while, so it’s best to do this well in advance of the year-end, to ensure donation receipts have 2024 dates. 

Optimize your RRSP.

Given the frenzy to make Registered Retirement Savings Plan (RRSP) contributions before the RRSP deadline – up to 60 days after the current year ends – it’s clear many Canadians appreciate the benefits of the tax-advantaged account. The next RRSP deadline is March 3, 2025. However, if you are 71 years old at the end of the year, you have to make a final RRSP contribution no later than December 31. Similarly, your RRSP must be matured by the end of the calendar year.

How to make the most of your RRSP? By estimating how much room you would have in 2025 and overcontributing in December 2024. You will be subject to a penalty of 1% for the one month when you overcontributed (in excess of the $2,000 allowable overcontribution), but the tax savings generated by making the contribution should more than offset the penalty.

Those turning 71 can also take advantage of unused contribution room by contributing to a spousal RRSP, so long as the partner is 71 or younger.

Take advantage of the FHSA account.

Buying a home can be a challenge for many first-time homebuyers, but the First Home Savings Account (FHSA) aims to make saving for that down payment a little easier. When it comes to contributions, the FHSA works like an RRSP, in that they are tax-deductible. That means any amount you add to the account is taken off your taxable income that year. For withdrawals, the FHSA works like a TFSA, in that money withdrawn from an FHSA for the purpose of buying a first home is tax-free. For this to work, you must be a first-time homebuyer at the time the withdrawal is made, and the money has to go toward a property located in Canada. To find out more about eligibility and details, visit Fidelity’s FHSA page. The tax advantages offered by the FHSA make it increasingly attractive among the registered accounts available in Canada.

Be aware of minimum annual RRIF withdrawals.

You don’t need to make a withdrawal the year you set up your Registered Retirement Income Fund (RRIF), but you will have to make minimum withdrawals in subsequent years. The minimum withdrawal amount is calculated by multiplying the market value of your RRIF holdings at the beginning of the year by a “prescribed factor” that increases with age.

Don’t miss out on the RESP grant.

Registered Education Savings Plans (RESPs) can help parents and other family members save for a child’s post-secondary education in a tax-deferred account. The real benefit, though, comes from the Canada Education Savings Grant (CESG). The federal government grant matches 20% of your RESP contribution of up to $2,500 per child per year. If you max out the grant, that could help you save an additional $500 toward your child’s education, up to a lifetime maximum of $7,200 per child. If you haven’t contributed in previous years, the annual grant can be as much as $1,000 on a $5,000 contribution. RESPs are funded with after-tax dollars, meaning that, unlike with RRSPs, contributions are not tax-deductible. Their benefit is derived from both the 20% CESG and the ability to grow on a tax-sheltered basis before being used as an educational assistance payment for the beneficiary.

Save for Canadians with disabilities with an RDSP.

The Registered Disability Savings Plan (RDSP) is a federal government program to help Canadians save for the long-term financial security of individuals with disabilities. The RDSP shares many similarities with the RESP. First, contributions made to an RDSP are not tax-deductible, but earnings are allowed to grow tax-free. Second, as with the RESP, the government also pays grant money into an RDSP, although using a different formula. The RDSP grant is based on the contribution and the beneficiary’s family’s net income. Consider contributing on or before December 31 to maximize the income deferral and benefit from the grant.

Grow your savings faster with a TFSA.

There’s no disputing the tax benefits of a registered account, but some limit the ways you can use that money. Not the Tax-free Savings Account (TFSA). With a TFSA, all of your investment growth is completely tax-free, and you can use the funds however you like. Still, to make the most of this account, consider making withdrawals in December. Why? Because you re-gain that contribution room in January of the following year (if you wait to move the money in January or onwards in 2025, you’ll have to wait until 2026 to reclaim that room).

The contribution room in the account has changed over the years, but its ability to help Canadians save hasn’t wavered. TFSA contribution room for 2025 currently sits at $7,000. If you’ve never contributed to the account before and you turned 18 in 2009 (or earlier), then you can contribute up to $102,000 as of 2025. Now is an excellent time to talk to your advisor about how to make the most of this contribution room – and be ready to make your 2025 contribution in January.

Early tax planning beats last-minute scrambling.

Few people enjoy doing taxes, but as you can see here, it’s to your advantage to keep some of these tax considerations top of mind heading into the end of the year. Take advantage of every tax-saving opportunity you can today – your future self will thank you. Your financial advisor can help you identify and take advantage of these potential tax savings. Do things right and you may even receive a little post-holiday “gift” from the tax collector in 2025! Try our Tax Calculator to get ahead this tax season. Of course, these are just guidelines to help you make sure you’re asking the right questions. Taxes can be complicated and depend on your circumstances, so it’s important to talk to your financial and tax advisors to see what steps offer you the biggest benefit.