Year-end tax-saving tips for Canadians for 2024

Reduce taxes in the current year

There are several ways to do this:

• Fill tax efficiency gaps: Many Canadians have unused tax-advantaged savings room in registered accounts—and this is a real miss. For example, you can invest in your registered retirement savings plan (RRSP) to reduce net income and thereby not just reduce your taxes payable but also increase social benefits you may qualify for, such as the Canada Child Benefit (CCB), the GST/HST Credit and the Canada Dental Care Plan. Open a first home savings account (FHSA) if you qualify to save up to $8,000 a year for a new home. You must open the account to create the annual room, so do so before year end, even if you can only put a small amount of money aside. 

• Plan taxes on capital gains. New higher capital gains inclusion rates (66.7%) will apply to capital gains over $250,000 per individual, generated after June 24, 2024. Below this the inclusion rate remains 50%. This will affect assets in non-registered accounts, personal residences including cottages, rental properties or certain business assets. At the time of writing the new capital gains rules were expected to be passed into law. 
• Plan business income levels. Unincorporated business owners will need to pay Canada Pension Plan (CPP) premiums at the end of the year with their taxes. The costs are going up steeply; they can exceed $8,000 a year when net income is over $70,000. But it’s possible to reduce net income with a deduction for capital cost allowance (CCA) on a new asset purchase, such as a car or new furniture. Check this out with your advisor.  
• Manage tax installment payments: If you owed $3,000 or more when you filed your taxes last year and in either of the two preceding tax years, you would have been asked by CRA to make quarterly tax installment payments. Farmers and fishers make that payment only once, at the end of December. But what if your income has dropped this year? It may not be necessary to make the December payment. Use the cash flow to make tax-wise investments before year end instead.

Recover taxes previously paid

Most people are unaware that you can adjust for errors or omissions on prior filed returns up to 10 years back. So, for 2024, that means 2014 to 2023. It can really pay to look back and review prior filed returns for missed tax credits like medical expenses, tuition fees, charitable donations or lucrative deductions like child care, moving expenses or investment carrying charges. You can carry back capital losses unused in one tax year to offset capital gains income in the previous three years. You can also carry forward unused capital losses indefinitely into the future. Charitable donations made in one tax year can be carried forward up to five years.

Set yourself up to minimize taxes in the future 

This involves understanding the carry-over provisions described above. Equally important is knowing what tax bracket your income falls into. The Canadian tax system is based on progressivity: the more you earn, the higher the tax rate you pay.  That’s determined by various tax rates applied to income brackets, shown below.   

Federal Tax Brackets and Rates for 2024 and projected for 2025 

If there is an income gap before the next tax bracket, consider “topping income up.” Seniors could make an extra withdrawal from their registered retirement income fund (RRIF), for example. Others might consider generating some capital gains from the sale of financial assets held outside of a registered account.  

Be mindful, though, that prepaying tax could attract quarterly installment payments. However, as a rule, averaging out income from year to year is beneficial, especially if you expect to generate a large income source, for example from a sale of an asset, in the future.

If any income has spilled into the next tax bracket, consider reducing it with an RRSP contribution or doing some tax-loss harvesting to reduce capital gains income. You might also be able to split certain income sources (like a pension) with your spouse.  

Tax savings with registered accounts

Finally, set up your future with tax-advantaged accounts below. They do not generate a tax deduction this year but they will deliver on turbo-charging your future wealth:

• Top up your TFSA: All you need to be is at least 18 and a resident of Canada to have a tax-free savings account (TFSA). As mentioned, the contributions aren’t deductible, but on withdrawal there is no tax on either the earnings or the principal. This is a great dipping pot for emergencies, but also potentially part of a million-dollar retirement plan, depending on how long the money stays in the plan and your rates of return. 
• Maximize education savings in RESPs. To get the related Canada Education Savings Grant and Canada Learning Bond from the federal government, you need to contribute to a registered education savings plan (RESP) for a child. The account can earn a CESG of up to $600 each year when you invest up to $2,500 (the grant is income-tested). The CLB is also based on your net income; it attracts $500 in the year the RESP is opened and then $100 a year until the child turns 15, for a total of $2,000. So it’s important to file a tax return each year and reduce your net income with allowable deductions like child care and FHSA/RRSP contributions. 
• Maximize RDSPs contribution room: Registered disability savings plans (RDSPs) supplement pension for disabled people in a family. Again, depending on income levels, the RDSP contribution will attract lucrative government grants and bonds.
• Consult with a tax specialist to explore more. That’s important because there are several new quirks this year, including changes to the Alternative Minimum Tax (AMT) which affects those in the fourth tax bracket: above $173,206 in 2024 and $177,883 in 2025.   

Year-end tax planning questions

This article won’t answer all your year-end tax questions. So I have listed more tax-planning questions you should be asking yourself and your advisor, every December (or sooner, really).