2024 Year-End Tax Planning Checklist

Chris Hanley, CA, CPA, CFP® and Denika Heaton, BBA, JD, TEP
Mawer Tax and Estate Planning Specialists 

While year-end tax planning may not rank highly amongst your favourite end-of-year activities, this essential practice can help keep more of your money in your pocket—which we think is cause for festive cheer.

Please keep in mind the following best practices are general in nature, and everyone's financial situation is unique. We recommend consulting with a qualified tax advisor before implementing any of these strategies to ensure they align with your individual financial goals and tax situation.

RRSP Strategies

Contribute early

While you generally have until March 1st to make Registered Retirement Savings Plan (RRSP) contributions for the current tax year, contributing before December 31st provides an added benefit: more time for your investments to grow through the power of compounding.

By making your contributions early, you allow your investments to generate returns sooner, leading to potentially greater growth over time.

Contribute to a Spousal RRSP

Consider contributing to a spousal RRSP. This strategy allows you to take advantage of the tax deduction while continuing to build retirement savings for your spouse. It also provides opportunities for income splitting in retirement, potentially reducing your overall tax burden as a couple.

Even if you are over 71 and can no longer contribute to your own RRSP, you can still contribute to a spousal RRSP if your spouse is under 71. To avoid income attribution, your spouse shouldn't withdraw from their spousal RRSP in the year you contribute or the following two years.

Contribute to an RRSP for future home purchase

Consider contributing to your RRSP if you plan to use the Home Buyers' Plan (HBP) in the future. The HBP allows first-time homebuyers to withdraw up to $60,000 from their RRSPs tax-free to purchase or build a home. The amount withdrawn is then repaid to the RRSP over a 15-year period, starting two to five years after the withdrawal (depending on when the withdrawal is made).

By contributing to your RRSP before December 31st, you can start benefiting from tax-deferred growth on your investments, while also enjoying a tax deduction for the RRSP contribution.

Age 65+: Manage income level and OAS “clawback”

If you’re age 65 and receiving OAS, consider making an RRSP contribution if you have available contribution room, even if you don't plan to use the full deduction this year. You can carry forward unused deductions to future years, which can be strategically used to manage your income level and limit the Old Age Security (OAS) clawback.

This approach can help you optimize your retirement income and minimize potential reductions in your OAS benefits.

Age 71: The overlooked RRSP opportunity

Don’t forget the often-overlooked opportunity to contribute to your RRSP in the year you turn 71 if you’re still working and earning income. This can be particularly beneficial as you can deduct the contribution from your income next year.

Keep in mind that there is a small penalty tax—1% per month—on contributions exceeding your limit. However, if managed correctly, the tax deduction next year can outweigh this minor penalty, making it a worthwhile strategy to maximize your retirement savings.

Open and Contribute to an FHSA

A First Home Savings Account (FHSA) could be a great way to reach your homeownership goal with some tax advantages. The FHSA is a tax-free account designed to help Canadians save for their first home over a maximum of 15 years. Contributions to an FHSA are tax-deductible (like an RRSP), and any growth and withdrawals you make for buying your first home are tax-free.

Once you open an FHSA, you get $8,000 of contribution room each year and can carry forward one year’s unused room. That means it’s best to make annual contributions, as you can’t make a big catch-up contribution for multiple years. By opening your FHSA and contributing before December 31, you can start growing your tax-free savings sooner, putting you a step closer to owning your first home.

RESP Strategies

Contribute to your family’s RESP

When it comes to saving for your child’s or grandchild’s education, contributing to a Registered Education Savings Plan (RESP) early can make a big difference. RESP contributions not only grow tax-free, but they also qualify for government grants, like the Canada Education Savings Grant (CESG), which matches 20% of your annual contributions up to $500 per year.

By contributing sooner, you maximize the time for your savings to grow and benefit from the compounding effect. Plus, the earlier you contribute, the more years you have to take advantage of these government grants, helping to boost your education fund even more.

Withdraw from your family’s RESP

If your child or grandchild attended or graduated from a post-secondary institution in 2024, it may be a good time to arrange for Educational Assistance Payments (EAPs) from the RESP before year-end. EAPs are counted as income for the student; however, they can often be effectively tax-free if the student has enough personal tax credits to offset the amount. By withdrawing before year end, the EAP can be included in the student’s 2024 income tax return.

TFSA Strategies

Contribute to your TFSA

The Tax-Free Savings Account (TFSA) contribution limit for 2024 is $7,000, plus any unused contribution room you’ve carried forward. While there’s no specific deadline for contributing, making your contribution sooner can give your investments more time to grow.

Early contributions let your investments benefit from compounding, meaning your returns have the chance to grow on top of each other over time, potentially boosting your savings in the long run.

Withdraw from your TFSA

If you have a need to withdraw from your TFSA in early 2025, consider instead making the withdrawal before December 31, 2024. When you make a withdrawal from your TFSA, you will regain the same amount of contribution room the following calendar year. By making the withdrawal in 2024, you will be able to begin making re-contributions in 2025, and not have to wait until 2026 to begin re-contributing to your TFSA.

It’s important not to overcontribute to a TFSA, as penalties apply.

Accelerate Medical Expenses

If you expect to incur medical expenses in the near future, consider accelerating any planned treatments or purchases to before December 31st. To be eligible for a non-refundable tax credit, your total medical expenses must exceed either 3% of your net income or $2,759, whichever is less.

By timing your expenses strategically, you can maximize your claim and benefit from the associated tax credit.

Harvest Capital Losses

Capital loss harvesting involves selling non-registered investments that have declined in value to offset capital gains realized during the year to reduce your overall taxable income. Capital losses are first applied to zero out current year capital gains, then any excess losses can be carried back three years or carried forward indefinitely.

Before making any dispositions, review your investment goals and consult with your Investment Counsellor to ensure this strategy aligns with your long-term plans. To use the losses from a disposition, you, your spouse, and certain entities you control must avoid repurchasing the same investments within a 30-day window before or after the sale.

Did you crystallize pre-June 25 capital gains?

With the proposed increase in the capital gains inclusion rate from one-half to two-thirds effective June 25, 2024, some taxpayers chose to realize or "crystallize" capital gains before that date to take advantage of the lower one-half inclusion rate. If you took this approach, you may wish to avoid realizing capital losses in the same tax year. When gains and losses occur in the same year, they offset each other (with adjustments for the different inclusion rates before and after June 25), which could reduce the benefit of your crystallization strategy.

It may be more advantageous to realize those capital losses to offset future capital gains, which will be taxed at the higher inclusion rate, potentially maximizing your tax savings.

Make Charitable Donations

Making charitable donations before December 31st can reduce your income taxes while supporting causes you care about. Donations to registered charities will provide a non-refundable tax credit which can reduce your taxes. By giving before the year ends, you not only contribute to worthy causes but also lower your tax bill, making it a win-win situation.

Do you have publicly traded securities with gains?

While donations of cash to registered charities will provide a credit to reduce your taxes, you can further reduce your taxes if you donate non-registered publicly traded securities (e.g., individual stocks or mutual fund units) directly to a registered charity.

By doing so, you receive a tax receipt for the fair market value of the shares or units donated and avoid paying capital gains tax on their appreciation. By donating shares instead of cash, you leverage appreciated assets for a greater impact on both your charitable giving and tax savings.

Pay Interest on Prescribed Rate Loans

If you have a prescribed rate loan arrangement for income splitting, ensure you pay the interest on these loans by January 30th. The tax rules allowing these arrangements require interest to be paid annually, within 30 days of the end of the year, to keep the loan arrangement tax effective. Paying the interest on time allows you to maintain the tax benefits.

Review AMT With Your Tax Advisor

The 2024 changes to Alternative Minimum Tax (AMT) could affect more individuals and trusts than before. If your personal income is over approximately $173,000 and includes income taxed at lower rates—like capital gains, stock options, or Canadian dividends—or if you use certain deductions and credits, such as prior-year losses or donation credits, it may be worthwhile to discuss AMT with your tax advisor. They can help you determine if AMT might apply this year, suggest strategies to reduce its impact, and explain how it may be recovered in future years as a credit against future taxes.

For trustees, it's also important to note that trusts may now be affected by AMT at any income level, without the $173,000 basic exemption available to individuals. The changes are complex, so connecting with your tax advisor could be helpful.

Business Owner Year-End Strategies

If you own an incorporated business, consider discussing the following strategies with your corporation’s tax advisor before the year ends. Year-end tax planning for your business may vary depending on your fiscal year.

Make charitable donations

Making charitable donations from your private Canadian corporation, including gifts in-kind of publicly traded securities, offers three benefits: a tax deduction for the corporation, exemption from taxable capital gains on appreciated assets, and potential tax-free payouts to shareholders via the Capital Dividend Account (CDA).

Declare salaries and dividends

Declaring a salary to yourself or family members can allow income-splitting, which can help make use of lower personal tax brackets and, depending on timing, you may be able to defer personal taxes until the following year. Salaries to family members must generally be reasonable for the services provided. 

For dividends, your corporation may have pools of tax-free or tax-efficient notional amounts that could be declared to you, providing tax benefits. Declaring these amounts payable could trigger tax refunds for the corporation, adding further value.

Repay shareholder loans

If you have a loan owed to your private corporation, consider repayment of any loan as soon as possible to avoid potential inclusion of a taxable benefit on your personal income tax return.

Purchase capital property before year-end

If you're planning to buy depreciable capital property such as equipment or computers for your business soon, consider making the purchase before year-end to benefit from tax depreciation (Capital Cost Allowance or CCA). Although the “immediate expensing” incentive which allowed full first-year deductions for certain purchases ended on January 1, 2024, there’s still an accelerated depreciation allowance available for some assets. Check with your tax advisor to see if these remaining incentives apply to your upcoming purchases.

Disclaimers:

This communication is an overview only and it does not constitute financial, business, legal, tax, investment, or other professional advice or services. It is not intended to be a complete statement of the law or an opinion on any matter. If you (or any of your family members) are a U.S. citizen, hold a U.S. green card, or are otherwise considered a U.S. resident for U.S income/estate tax purposes, the Canadian and/or U.S. tax implications could be substantially different from those outlined herein. No one should act upon the information in this communication as an alternative to legal, financial or tax advice from a qualified professional. No member of Mawer Investment Management Ltd. is liable for any errors or omissions in the content or transmission of this email or accepts any responsibility or liability for loss or damage arising from the receipt or use of this information.

While we endeavour to ensure that the information in this communication is correct, we do not warrant or represent its completeness or accuracy. This communication is not updated, and it may no longer be current. To the maximum extent permitted by applicable law, we exclude all representations, warranties and conditions relating to this communication.

*

Mawer Investment Management Ltd. provides this publication for informational purposes only and it is not and should not be construed as professional advice. The information contained in this publication is based on material believed to be reliable at the time of publication and Mawer Investment Management Ltd. cannot guarantee that the information is accurate or complete. Individuals should contact their account representative for professional advice regarding their personal circumstances and/or financial position. This publication does not address tax or trust and estate considerations that may be applicable to an individual’s particular situation. The comments are general in nature and professional advice regarding an individual’s particular tax position should be obtained in respect of any person’s specific circumstances.