The final level of 2025 is here, making this the perfect time to sharpen your skills, power up for tax season, and set the stage for 2026. Conquer your tax planning with five essential strategies designed to help you unlock maximum savings and stay ahead of the game.
1 . Choose Your Investments Wisely
If you have cash available and are considering additional investments, utilizing registered accounts can provide tax savings and/or a tax deferral opportunity. Consider the following registered account options.
If you are a first-time homebuyer who is a resident of Canada and at least 18 years of age, the FHSA allows you to save on a tax-free basis toward the purchase of a home. Contributions to an FHSA are tax-deductible, and withdrawals for a qualifying home purchase are tax-free.
From the year you open an FHSA, you can contribute up to $8,000 annually, with the option to carry forward a maximum of $8,000 of unused contribution room to the following year. There is, however, a life-time contribution limit of $40,000. If you qualify, it is advisable to open an FHSA by December 31st of any given year, even if you are not ready to contribute that same year. Doing so allows you to accumulate contribution room ahead of time and, if desired, contribute up to $16,000 the following year, providing an opportunity for a deduction against your income during a high-earning year.
The RRSP is another effective way to manage your taxable income. Contributions to an RRSP are tax-deductible, making it especially advantageous if you are in a higher tax bracket. Investments grow tax-free in the account; however, withdrawals are taxable. The plan is primarily to accumulate retirement savings, presumably when you will be in a lower tax bracket but can also be used to fund the purchase of a first home through the Home Buyers’ Plan. You can also achieve income-splitting by contributing to a spousal RRSP.
Your contribution room can be found on your CRA My Account or on your 2024 Notice of Assessment. It is essential to check your contribution room to ensure you do not exceed the limit, as over-contributions are subject to penalties.
Consider investing through a Tax-Free Savings Account (TFSA) or Registered Education Savings Plan (RESP).
TFSAs allow Canadians to earn investment income tax-free. Although contributions are not tax-deductible, withdrawals are tax-free. It’s a flexible investment tool, ideal for years during which income is low or when other plans, like RRSPs, have been maximized. Your contribution room can be found on your CRA My Account, but be mindful of overcontributions, as they are subject to significant penalties.
The RESP is ideal for parents saving for a child’s education. Investment income grows tax-free within the plan, and contributions may qualify for government grants. While there is no annual contribution limit, the lifetime contribution limit for any beneficiary is $50,000. If used for education, withdrawals from the RESP are taxable to the student beneficiary. The portion of the withdrawal that represents prior contributions is not taxable. Students usually have little or no income, so they will likely pay a lower tax rate on withdrawals.
Utilizing registered accounts like the FHSA, RRSP, TFSA, or RESP can grow your investments in a tax-efficient manner, and planning your contributions strategically will ensure you make the most of these opportunities.
Selling investments with accrued losses at year-end in non-registered accounts should be considered to potentially help offset capital gains realized earlier in the year in your non-registered accounts. Any net capital losses that cannot be used in the current year can be carried back three years or carried forward indefinitely to offset capital gains in the other respective year. Where a capital loss is triggered on a security, there are however loss restriction rules that will need to be considered, where that same security is subsequently repurchased.
First Home Savings Account (FHSA)
If you are a first-time homebuyer who is a resident of Canada and at least 18 years of age, the FHSA allows you to save on a tax-free basis toward the purchase of a home. Contributions to an FHSA are tax-deductible, and withdrawals for a qualifying home purchase are tax-free.
From the year you open an FHSA, you can contribute up to $8,000 annually, with the option to carry forward a maximum of $8,000 of unused contribution room to the following year. There is, however, a life-time contribution limit of $40,000. If you qualify, it is advisable to open an FHSA by December 31st of any given year, even if you are not ready to contribute that same year. Doing so allows you to accumulate contribution room ahead of time and, if desired, contribute up to $16,000 the following year, providing an opportunity for a deduction against your income during a high-earning year.
Registered Retirement Savings Plan (RRSP)
The RRSP is another effective way to manage your taxable income. Contributions to an RRSP are tax-deductible, making it especially advantageous if you are in a higher tax bracket. Investments grow tax-free in the account; however, withdrawals are taxable. The plan is primarily to accumulate retirement savings, presumably when you will be in a lower tax bracket but can also be used to fund the purchase of a first home through the Home Buyers’ Plan. You can also achieve income-splitting by contributing to a spousal RRSP.
Your contribution room can be found on your CRA My Account or on your 2024 Notice of Assessment. It is essential to check your contribution room to ensure you do not exceed the limit, as over-contributions are subject to penalties.
Tax-Free Savings Account (TFSA) and Registered Education Savings Plan (RESP)
Consider investing through a Tax-Free Savings Account (TFSA) or Registered Education Savings Plan (RESP).
TFSAs allow Canadians to earn investment income tax-free. Although contributions are not tax-deductible, withdrawals are tax-free. It’s a flexible investment tool, ideal for years during which income is low or when other plans, like RRSPs, have been maximized. Your contribution room can be found on your CRA My Account, but be mindful of overcontributions, as they are subject to significant penalties.
The RESP is ideal for parents saving for a child’s education. Investment income grows tax-free within the plan, and contributions may qualify for government grants. While there is no annual contribution limit, the lifetime contribution limit for any beneficiary is $50,000. If used for education, withdrawals from the RESP are taxable to the student beneficiary. The portion of the withdrawal that represents prior contributions is not taxable. Students usually have little or no income, so they will likely pay a lower tax rate on withdrawals.
Utilizing registered accounts like the FHSA, RRSP, TFSA, or RESP can grow your investments in a tax-efficient manner, and planning your contributions strategically will ensure you make the most of these opportunities.
Tax-Loss Harvesting
Selling investments with accrued losses at year-end in non-registered accounts should be considered to potentially help offset capital gains realized earlier in the year in your non-registered accounts. Any net capital losses that cannot be used in the current year can be carried back three years or carried forward indefinitely to offset capital gains in the other respective year. Where a capital loss is triggered on a security, there are however loss restriction rules that will need to be considered, where that same security is subsequently repurchased.
2. Donation Planning
In order to utilize a donation tax receipt against income tax generated in a given taxation year, the donation must be made in that same taxation year. This means that in order for an individual to utilize a donation receipt for 2025, the donation must be made by December 31, 2025. Donation tax credits are available both federally and provincially and can result in tax savings.
Ensure that your year-end donations are completed in a tax-efficient manner. Consider donations of appreciated public company shares from your private corporation’s investment portfolio, or individually, from a personal non-registered investment account. By donating these public company shares, neither the corporation nor the individual will generally incur taxes on the accrued gains. The corporation or individual making the donation will receive a donation receipt reflecting the fair market value of the donated shares.
3. Spousal Loan Arrangements
A spousal loan is a loan arrangement between two spouses, whereby the higher-income spouse can loan money to lower-income spouse. The purpose of the loan would be to allow the lower-income spouse to invest the borrowed funds and generate investment income. The investment income generated would be taxed at the lower-income spouse’s marginal tax rates, thus potentially lowering the overall tax liability for the family.
It is important to execute the loan arrangement correctly. If the arrangement is deemed non-compliant, the investment income could be attributed back to the higher-income spouse, negating the intended tax benefits.
Key Considerations for Implementation
- The higher-income spouse should be earning significantly more than the lower-income spouse to maximize the tax benefits of this arrangement.
- The loan must carry interest at the CRA prescribed rates (Currently at three per cent). The annual interest must be paid by the borrower by January 30th of the following year.
- Investment income is not guaranteed; market fluctuations can affect the rate of return. This planning would only be beneficial if rates of return are in excess of the interest rate on the loan.
It is important to execute the loan arrangement correctly. If the arrangement is deemed non-compliant, the investment income could be attributed back to the higher-income spouse, negating the intended tax benefits.
4. Be Aware of Changes to the Alternative Minimum Tax (AMT)
The Alternative Minimum Tax (AMT) is often applicable when an individual claims preferential deductions, exemptions, or credits against their income. Its purpose is to ensure that individuals pay a baseline minimum amount of tax. AMT is, however, effectively a prepayment of income taxes, as any AMT paid can generally be carried forward for up to seven years and used as a credit to offset “regular” income tax payable in a future year. Be mindful that if you do not pay enough regular income tax to recover the AMT within the seven-year carryforward period, the AMT will become an unrecoverable permanent tax cost.
An individual may face AMT in 2025 if their taxable income exceeds $177,882 and if they have investment income such as capital gains, Canadian dividends, or stock options, or if they claim deductions or credits such as unused non-capital losses, unused capital losses, non-refundable tax credits and donation tax credits. Planning may be required to ensure the AMT is recovered and does not end up as a non-recoverable tax.
5. Strategize the Timing and Mix of Your Income as a Business Owner
Effectively managing the timing and mix of your income can lead to significant tax savings, especially if financial circumstances are expected to change. For example, if your income is lower in 2025, it may be advantageous to withdraw funds from your business this year to take advantage of lower personal marginal tax rates. On the other hand, if you anticipate a lower tax rate in 2025, deferring distributions from your business, where cash flow permits, could help reduce your overall tax liability.
Salaries and dividends are the two most common forms of withdrawing funds from your corporation, each with distinct tax implications. For example, withdrawing income as salary would generally create RRSP contribution and child-care deduction room, while dividends may be taxed at a lower rate.
This article has been prepared for the general information of our clients. Please note that this publication should not be considered a substitute for personalized advice related to your situation.
How Can We Help?
Planning for the upcoming tax season can seem daunting, but utilizing the tax-efficient tips provided above can help you optimize your finances and navigate your taxes with confidence.
If you have any questions about the information above, don't hesitate to contact your Crowe Soberman advisor.
Staying organized will make filing your 2025 personal tax return smoother and reduce the likelihood of missing out on valuable tax deductions or credits. Stay tuned for our 2025 Personal Tax Organizer, available in early 2026.
Ananth Balasingam
Partner,
Tax
Ananth Balasingam Professional Corporation
Ross Pasceri
Partner,
Tax
Rosario Pasceri Professional Corporation