Capital gains or losses
The end of the year is a good time to clean up your unregistered portfolios.
Financial markets have been doing well since the beginning of the year and you may have realized capital gains this year. You could then take advantage of this by selling off some of the loss-making securities in your portfolios before the end of the year to offset some of your gains.
Otherwise, your unused capital losses from previous years can be applied against your 2024 capital gains to reduce the tax impact.
Your capital loss will, however, become a superficial loss if you dispose of property at a loss and you, your spouse or a company controlled by either of you purchases identical property during the period between 30 days before and 30 days after initial disposition. The denied loss will be added to the tax cost of the new purchaser, which means that the tax benefit will only arise when there is a disposition of the property by the new purchaser.
Transfer of losses between spouses
A little planning could allow the spouse with the highest marginal tax rate in the couple to use their spouse’s unrealized losses against their capital gains.
Registered Education Savings Plan (RESP)
You will get the maximum government incentives (20% federal subsidy and 10% minimum in Quebec) by contributing $2,500 during the calendar year and not in the first 60 days of the following year like to an RRSP.
You can also catch up (one year at a time) the grants for any past years you did not get the maximum incentive by making an additional contribution in the year.
Please note that federal and Quebec subsidies are granted until the year in which the beneficiary turns 17. So if the beneficiary turned 17 in 2024, you have until December 31 to benefit from the subsidies for 2024 and recover a previous year not fully used.
For 2025 and beyond, remember that by making your contributions at the beginning of the year you will benefit more from the tax deferral on returns. Alternatively, automatic contributions throughout the year would spread your investment and improve the average cost of your investments.
Registered Disability Savings Plan (RDSP)
This plan is for an individual beneficiary residing in Canada who is eligible for the federal disability tax credit.
An annual contribution of $1,500 will obtain the maximum subsidy, subsidy of 100-300% of your contribution depending on your 2020 family income.
As with the RESP, contributions must be made within the year, excluding the first 60 days of 2025.
HBP or LLP reimbursement
If you have a minimum repayment to make to your RRSP under the Home Buyers’ Plan or the Lifelong Learning Plan, you have until March 1, 2025 to make your RRSP contributions in order to designate as HBP or LLP repayment for 2024.
Please note that the reimbursement cannot be made to the spousal RRSP.
HBP Withdrawal
If you plan to take advantage of the HBP in 2025 as a down payment for the acquisition of a property and you will need to make an additional contribution to your RRSP to be able to benefit from the maximum HBP withdrawal of $60,000 (since April 17, 2024), by contributing to your RRSP before the end of 2024 you will obtain your tax deduction in your next income tax return in the spring and the 90-day waiting period on your most recent contribution will be quickly completed in early 2025.
First Home Saving Acciount (FHSA)
Since 2023, the tax-free savings account for the purchase of a first home allows you to contribute up to $8,000 / year fully deductible for a maximum of $40,000 for life. It is also possible to catch up on an unused contribution year. It should be noted, however, that you do not benefit from the first 60 days of 2025 to make your 2024 contribution. However, since the FHSA has a lifespan of a maximum of 15 years, you must carefully evaluate the relevance of opening this account.
The FHSA can be added to the HBP.
RRSP excess contribution
You receive an annual notice of assessment from the Canada Revenue Agency (CRA) following the filing of your income tax returns, containing several pieces of information, including your maximum deduction for an RRSP.
The CRA tolerates up to $2,000 of excess contribution over your deductible maximum.
As soon as you exceed your RRSP contribution limit by more than $2,000, you will have to pay a monthly tax of 1% of the excess.
It is therefore very important to always validate your available space before contributing to your RRSP and to correct the situation as soon as possible in the event of an over-contribution.
RRSP doubled
If you turn 71 in 2024, this is your last year to contribute to your RRSP.
If you know that you will have new contribution room for the year 2025, you could make a second contribution to your RRSP in December 2024. You would then have to pay a tax of 1% for one month on this excess contribution but you will get a deduction for this second contribution in 2025.
Thereafter, you will only be able, as long as you have contribution room, to make your contributions to the RRSP of your spouse aged 71 or less.
You should also consider that this is your last year to deduct your accumulated excess contribution balance.
71st birthday and RRSP
If you celebrated your 71st birthday this year, you must convert your RRSPs no later than December 31.
You have two choices: the registered retirement income fund (RRIF) and/or the life annuity. A detailed analysis of your personal situation will allow you to make the best decision.
We recommend that you use the age of the younger spouse when setting the minimum RRIF withdrawal to reduce mandatory withdrawals.
RRIF Minimum Withdrawal
If you had your RRIF before 2024, you must make the annual minimum withdrawal no later than December 31.
Don’t forget that no withholding tax is withheld on the minimum withdrawal from a RRIF, which could leave you with a balance to pay when you file your tax returns in the spring of 2025. Three possibilities are available: have taxes deducted at source according to your marginal tax rate, make the required installment payments or fund future tax balances.
RRSP withdrawal or additional RRIF withdrawal
If you plan to make large withdrawals by the end of the year or in early 2024, a detailed analysis of your marginal tax rate for 2024 and 2025 will allow you to reduce the related tax burden and perhaps even maximize your Old Age Security Pension.
Also, remember that only withdrawing from a RRIF (and not an RRSP) will give you the possibility of benefiting from the credit for pension income and spousal splitting.
Contributing to Spousal RRSP
Be sure to make your contribution to your spouse’s RRSP by December 31 to reduce the waiting period when the spouse withdraws these RRSPs without the income being attributed to you.
TFSA withdrawal
Since withdrawals from the Tax-Free Savings Account increase your contribution room the year following the year of the withdrawal, don’t forget to take this into account in order to maximize your TFSA while avoiding the monthly tax of 1% on excess contributions.
Thus, with a withdrawal made on the last day of December 2024, a contributory space of the same amount would be allocated to you as of January 1, 2025. So if you plan to make a withdrawal from your TFSA in early 2025, it would be more prudent to make this withdrawal by the end of 2024 in case you wish to return some of it to the TFSA.
Acquisition of investment funds
If you plan to acquire investment funds in a non-registered account, it would be preferable to postpone this purchase until early 2025 in order to avoid income distributions on December 31, 2024 and thereby increasing your tax bill next spring.
Significant capital gain
If you expect to realize a large capital gain by the end of 2024, check the possibility of deferring it to the beginning of 2025 so that you can defer the payment of the related taxes to the spring of 2026 rather than 2025.
In addition, since June 25, 2024, if you realize a capital gain greater than $250,000, the inclusion rate for this gain will be 2/3 rather than ½ for the portion of the gain exceeding $250,000. Therefore, good planning could allow you to spread the realization of the gain over two tax years (2024 and 2025) in order to remain under $250,000 and therefore save taxes.
Capital gain deduction
If you plan to dispose of assets eligible for the capital gains deduction (small business shares, farm property, fishing property) on which you will have a capital gain reaching the current limit of $1,250,000, the deferral of the gain at the beginning of 2025 would give you a little more tax relief with the annual indexing of this limit.
Investment fees or professional dues
Be sure to pay investment fees on your non-registered accounts and/or professional dues by the end of 2024 so you can claim the tax deduction on your next tax return.
Charitable donations
You will benefit from optimal tax savings by carefully planning your donations and when you make them.
The amount of your donations eligible for the credit is limited to 75% of your annual net income, while any unused portion can be carried forward over a maximum of 5 years. In addition, a donation amount greater than $200 will provide a more attractive credit rate.
Since the credit for donations is non-refundable, you must ensure that you have enough taxable income to be able to use any donation that has reached its fifth year of carryforward in 2024.
Donations can be made in cash or using eligible securities (stocks, bonds or investment funds, for example).
The use of qualifying securities will be done without including the capital gain in your income, which is preferable to selling the security to provide liquidity afterwards.
You will get even more benefits if your management company donates eligible securities.
Resist the temptation of donations offering a tax receipt greater than your actual disbursement.
Medical fees
Eligible medical expenses for a 12-month period ending in 2024 may provide you with a tax credit on your next tax returns. However, since the first 3% of net income (maximum $2,759) at the federal level or the first 3% of net family income is not giving right to it, it could be interesting to bring forward the costs scheduled for the beginning of 2025 in order to maximize this credit.
Rental property maintenance costs
All costs incurred in 2024 for the maintenance of a rental property will be deductible from the rents received. Larger expenses contributing to increase the market value of a building will be added to the acquisition cost and may give rise to a depreciation deduction.
Evaluate the possibility of carrying out the work planned by the end of 2024 in order to be able to deduct them from your income for current expenses or add them to your balance to be amortized for capitalizable expenses.
Instalments
Make sure you have made sufficient installment payments given the expected tax balances for 2024, otherwise you may be charged interest and penalties.
If you know that you have not paid enough installments, an increase in your tax deductions at source by the end of 2024 on your QPP pension and/or your OAS or other fixed monthly income (a retirement pension, for example) could allow you to avoid interest.
Alternative Minimum Tax
If you have had to pay alternative minimum tax (AMT) in recent years due to large tax deductions, you have up to 7 years thereafter to recover it.
Make sure you will have enough taxable income in 2024 if this is your last year to reclaim AMT or if you expect to not have enough taxable income in future years.
At Gaumont Groupe Conseil, we will be happy to help you implement these different strategies.