Tax is one of the biggest expenses you’ll have this year. And while paying tax is unavoidable, when and how much you pay is where strategy comes in.

 

Typically people take tax planning year by year. They only think about it in March or April when they’re preparing to file their return. But by that time, it could be too late.

 

The end of the year is fast approaching, which means that it’s a great time to sit down with your professional team, including your investment and tax advisors, to review your financial situation and determine what strategies you can utilize right now to reduce your tax bill in the future.

 

Here are 6 options you may want to consider before the new year:

Make your TFSA contributions and withdrawals

In 2024, the contribution limit for your Tax Free Savings Account (TFSA) is $7,000 plus any unused contribution room from previous years. While there is no deadline for making your contribution to this account, consider beating the rush and getting it in before the new year. Be sure to double check your contribution room with the CRA to avoid over-contributing to your TFSA.

 

And if you are planning on making a withdrawal from your TFSA, consider taking the money out by December 31, 2024. If you withdraw funds from your TFSA, the amount withdrawn is added to your contribution room for the following year, meaning if you take money out by the end of 2024 you won’t have to wait until 2026 to re-contribute that amount.

Maximize your registered plans

If you have children or grandchildren, you may consider topping up their Registered Education Savings Plan (RESP) in order to receive the government grants and maximize the tax-efficient savings for their post-secondary education.

 

When it comes to your Registered Retirement Savings Plan (RRSP), you have until March 3, 2025 to make contributions for 2024. However, the earlier you contribute, the longer your investments have to grow tax-free within your account. Even a few months of extra growth can make a meaningful difference over time due to the power of compound interest.

 

If you turned 71 in 2024, you must make any final contributions to your RRSP by December 31 before converting it to a Registered Retirement Income Fund (RRIF) or a registered annuity.

 

If you earned income in 2024 that will result in RRSP contribution room for 2025, consider making a one-time overcontribution to your RRSP in December. While this overcontribution would result in a 1% penalty tax in December (if it exceeds the $2000 allowable overcontribution), the new contribution room that will become available on January 1, 2025 eliminates that penalty going forward. You can then claim the overcontributed amount as a deduction on a future tax return.

 

If you have a younger spouse or partner, you can still use your RRSP contribution room after 2024 by contributing to a spousal RRSP until the year your partner turns 71. In this case, the overcontribution would be unnecessary. 

Claim any eligible investment expenses

Certain investment-related expenses must be paid by the end of the year in order to claim a tax deduction or credit in 2024.

 

Talk to your tax advisor about which expenses can and cannot be claimed.

Tax loss selling

This strategy involves selling investments that have accrued losses to offset any gains you might have made elsewhere in your portfolio. Capital losses can be carried back three years or carried forward indefinitely to be used against capital gains in the future.

Tax gains selling

In 2024, the capital gains inclusion rate increased to 66.67%; however, the first $250,000 a year of capital gains are still taxable at the former inclusion rate of 50%.

 

That means that there is an opportunity for some investors to do capital gains realization before year end to take advantage of the lower inclusion rate.

 

As there are a number of factors to consider, we advise you to speak with your advisor before deciding whether this option is right for you.

Charitable donations

‘Tis the season of generosity! If you give a cash gift of up to $200 to your favourite charity, the federal government offers a tax credit for 15% of that amount. And when you donate more than $200, that federal donation credit jumps to 29%. Provincial donation credits are also available and, depending on where you live, the total credit may be up to almost 55% for charitable gifts exceeding $200 in the calendar year.

 

Some charitable organizations will also accept gifts of publicly traded securities and mutual funds. These ‘in kind’ donations will not only get you a tax receipt for the fair market value of the security donated, but it will also eliminate the capital gains tax on that security as well.

 

While December 31 is the last day to make donations to get a tax receipt for 2024, you should plan in kind donations as early as possible to leave sufficient time to process the gifts to the charity of your choice.

Talk to your advisor about the right strategy for you

If you’re worried about a major tax bill, there are other strategies available to make your wealth more tax-efficient. Get the advice you need from your professional team to choose the right strategies for you and your family.