Chris Hanley, CPA, CA, CFP, Tax and Estate Planning Specialist, Private Wealth
Denika Heaton, BBA, JD, TEP, CEA, Tax and Estate Planning Specialist, Private Wealth
A few smart moves now can make next year more rewarding
The final weeks of 2025 present a window to implement tax strategies that could meaningfully reduce your tax burden and strengthen your financial position. Whether you're managing a business, planning for retirement, or building long-term wealth, thoughtful year-end planning can help you start 2026 on solid footing.
Note: These strategies are general in nature. Everyone's financial situation is unique, and we recommend consulting with a qualified tax advisor before implementing any of these approaches.
What's New in 2025?
Before diving into the year-end checklist, here's what's new this year:
Prescribed Rate Dropped to 3% – The lowest in years, creating income-splitting opportunities.
Productivity Super Deduction Proposed – New federal budget measure could allow full immediate write-offs for qualifying business assets.
Alternative Minimum Tax (AMT) Threshold Increased – The AMT basic exemption rose to approximately $178,000 (from $173,000), giving some high earners slightly more room.
Part 1: Shift Income to Lower-Taxed Family Members
Contribute to a Spousal RRSP
This remains one of the most accessible income-splitting strategies for couples where one spouse earns more than the other.
How it works: You make the contribution and claim the tax deduction, while the retirement savings grow in your spouse’s RRSP. Upon retirement, withdrawals are taxed in your spouse’s lower tax bracket, potentially reducing your overall tax burden as a couple.
Important Considerations
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.
New Prescribed Rate Loan Opportunities
The prescribed interest rate for new income-splitting loans has dropped from 4% to 3% as of the second quarter of 2025.
Why this matters: If you are considering setting up a prescribed rate loan to shift investment income to a lower-income family member (such as a spouse or other family members using a family trust), the interest rate in effect when the loan is made is “locked in” for the life of the loan.
If you already have a prescribed rate loan at a higher rate, speak with your tax advisor. In some situations, it may make sense to repay and re-establish the loan at the new lower rate.
Note: Alternative Minimum Tax may apply when using a trust, which may reduce the potential tax benefits.
Pay Interest on Prescribed Rate Loans
If you already have a prescribed rate loan arrangement for income splitting, you must pay the annual interest by January 30th.
To remain tax-effective, these arrangements require interest to be paid each year no later than 30 days after year-end. Paying on time helps you maintain income-splitting benefits.
Declare Salaries and Dividends
If you own an incorporated business, year-end is the time to strategically declare compensation for yourself and family members.
Salaries create opportunities for income-splitting with family members who work in the business, provided the compensation is reasonable for the services they provide. This approach allows you to make use of lower personal tax brackets and, depending on timing, may be able to defer personal taxes until the following year.
Dividends offer a different set of advantages. Your corporation may have certain balances that allow you to pay tax-free or lower-taxed dividends. In some cases, these dividends can be paid to family members (subject to Tax on Split Income rules), resulting in lower personal tax while potentially generating a tax refund in the corporation.
Note: The 2025 Federal Budget proposes some changes to corporate tax refunds for multi-tiered structures. Consult your tax advisor if this may apply to you.
Part 2: Maximize Tax-Deferred or Tax-Free Growth
Contribute to your Tax Free Savings Account (TFSA)
2025 Limit: $7,000 plus the unused room you’ve carried forward
While there’s no set deadline for contributing, doing so earlier gives your investments more time to grow. Early contributions let your investments benefit from compounding, where returns can build on top of each other over time, potentially boosting your savings in the long run.
Time Your TFSA Withdrawals Strategically
If you’re planning a withdrawal in early 2026, making it before December 31 instead can accelerate your ability to re-contribute.
Here’s why timing matters: When you withdraw from your TFSA, you regain that contribution room on January 1 the following year. This means a December 2025 withdrawal restores your contribution room on January 1, 2026, while a January 2026 withdrawal delays that re-contribution until January 1, 2027 – a full year later.
Important: Avoid overcontributing to your TFSA, as penalties apply.
Open and Contribute to an FHSA
Annual Limit: $8,000 plus up to one year’s unused room
A First Home Savings Account (FHSA) is a tax-advantaged account designed to help Canadians save for their first home purchase. You can contribute to an FHSA for up to 15 years from the date you open the account. Contributions are tax-deductible, similar to an RRSP, and any investment growth and qualifying withdrawals for buying your first home are tax-free.
Once you open an FHSA, you receive $8,000 of contribution room each year and can carry forward up to one year’s unused room. This means it’s best to make regular annual contributions, as you can’t catch up on missed contributions from past 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.
Contribute to Your RRSP Early
2025 Deadline: March 2, 2026
While you have until March 2nd to make RRSP contributions for the current tax year, contributing before December 31st gives your investments more time to grow through compounding.
Age 71: An Overlooked RRSP Opportunity
If you’re turning 71 this year and still earning income, don’t miss this valuable opportunity: you can contribute to your RRSP in the year you turn 71. 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 of 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.
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 qualifying home. The amount withdrawn must then be repaid to the RRSP over 15 years, 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.
Contribute to your Family’s RESP
Contributing to a Registered Education Savings Plan (RESP) before year-end maximizes both the time for tax-free growth and your eligibility for government grants. The Canada Education Savings Grant (CESG) matches 20% of your annual contributions up to $500 per year.
By contributing early, your savings benefit from years of tax-free compounding while maximizing the number of years you can receive government matching 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 2025, making Educational Assistance Payments (EAPs) before year-end can offer potential tax advantages.
While EAPs are considered taxable income for the student, they are 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 2025 income tax return.
Age 65+: Manage Income Level and OAS Clawback
If you’re age 65 and receiving Old Age Security (OAS), consider making an RRSP contribution if you have available room, even if you don't plan to use the full deduction this year. Unused deductions can be carried forward to future years and strategically used to manage your income level and limit the OAS clawback.
This approach can help you optimize your retirement income and minimize potential reductions in your OAS benefits.
Part 3: Utilize Credits and Deductions Strategically
Accelerate Medical Expenses
If you’re planning medical treatments or purchases, consider scheduling them before December 31st. To qualify for a non-refundable tax credit, your total medical expenses must exceed the lesser of 3% of your net income or $2,834.
By timing your expenses strategically, you can maximize your claim and benefit from the associated tax credit.
Make Charitable Donations
Making charitable donations before December 31st can reduce your income taxes while supporting causes you care about. Donations to registered charities generate a non-refundable tax credit that can lower your tax bill.
Donate Appreciated Securities for Enhanced Tax Benefits
While donations of cash to registered charities will provide a credit to reduce your taxes, you can further reduce your taxes by donating non-registered publicly traded securities (such as 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 securities donated and avoid paying capital gains tax on their appreciation. By donating securities instead of cash, you can leverage your appreciated investments to achieve greater impact in both your charitable giving and tax savings.
Harvest Capital Losses
Capital loss harvesting involves selling non-registered investments that have declined in value to offset capital gains realized during the year, reducing your overall taxable income. Capital losses are first applied to eliminate current year capital gains, and 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.
Review AMT With Your Tax Advisor
The 2024 changes to Alternative Minimum Tax (AMT) may affect more individuals and trusts than before. If your 2025 personal income exceeds approximately $178,000 and includes income taxed at lower rates—such as 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, 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 subject to AMT at any income level, unlike individuals, who have the $178,000 basic exemption. Given the complexity of these changes, consulting your tax advisor is recommended.
Part 4: Plan for Your Corporation and Business
Make Charitable Corporate Donations
Charitable donations from your private Canadian corporation, including gifts in-kind of publicly traded securities, provide three benefits: a corporate tax deduction, exemption from taxable capital gains on appreciated assets, and potential tax-free payouts to shareholders via the Capital Dividend Account.
Repay Shareholder Loans
If you have a loan owed to your private corporation, consider repaying it 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 plan to buy depreciable capital property, such as equipment, technology, or facilities, consider purchasing before year-end to take advantage of tax depreciation (Capital Cost Allowance, or CCA).
Some accelerated CCA measures introduced in recent years are still available but are gradually being phased out. Your tax advisor can confirm whether any of these remaining incentives apply to the specific type of asset you plan to acquire.
Additionally, the 2025 Federal Budget proposed a new set of temporary accelerated depreciation measures referred to as the Productivity Super Deduction. If enacted, this could allow a full immediate write-off for certain new buildings used primarily for manufacturing or processing, along with enhanced first-year depreciation for most other new capital assets. If your business plans to invest in equipment, technology upgrades, or new facilities, we recommend discussing planned capital expenditures with your tax advisor to understand the potential tax savings.
Taking Action on Your Year-End Tax Strategy
The strategies outlined in this checklist represent valuable opportunities to optimize your 2025 tax position and strengthen your financial foundation for 2026. However, the most effective approach is always personalized to your unique circumstances—your income sources, family structure, business interests, estate planning goals, and investment portfolio.
Our team is here to help you navigate these opportunities. Your Investment Counsellor can work with you to identify which strategies align with your goals and circumstances. Acting before December 31st ensures you don't miss valuable opportunities that reset with the calendar year.
All tax information sourced from the Canada Revenue Agency as of November 2025