Advance tax planning

As we approach the end of the year, Canadian taxpayers still have opportunities to reduce their tax burden for 2024.

This is not the first time I’ve written about year-end tax planning ideas, but a refresher of the general strategies never hurts. So I’ve put together a summary of five of the most common year end tips as well as some information on a few unique situations for the 2024 tax year as well.

Tax planning basics that can apply every year:

1. Contribute to your RRSP—While the RRSP deadline for the 2024 tax year is March 1, 2025, now is a good time to review your contribution room and set aside funds if possible. Contributions reduce your taxable income, and for many Canadians, this is one of the most effective ways to lower taxes.

2. Maximize TFSA contributions—While TFSA contributions don’t provide an immediate tax deduction, investment income grows tax-free. If you have unused contribution room, consider using it to shelter investment growth from taxes.

3. Donate to charity—Charitable donations made by Dec. 31 are eligible for a tax credit on your 2024 tax return. This can significantly reduce your taxes owing while supporting causes you care about.

4. Tax-loss selling—If you have investments in non-registered accounts that have decreased in value, selling them before year-end can help offset capital gains elsewhere in your portfolio. This strategy can reduce the taxes you’ll pay on investment income.

5. Optimize family tax planning—Consider strategies, such as income splitting or contributing to a spousal RRSP. Parents may also benefit from putting money into a Registered Education Savings Plan (RESP), which comes with government grants that grow over time.

What’s new for 2024?

While the above strategies form the foundation of good annual tax planning, some unique changes and opportunities stand out in 2024:

1. First Home Savings Account (FHSA)—2024 marks the first full year Canadians can contribute to the FHSA. This account combines the best features of TFSAs and RRSPs, offering tax-deductible contributions and tax-free withdrawals for a first home purchase. If you’re planning to buy a home, make sure to contribute before year-end to maximize your room.

2. Climate action incentives and rebates—The federal government continues to roll out new incentives tied to clean energy initiatives. In 2024, more provinces became eligible for rebates under the Climate Action Incentive Payment. If you’ve made energy-efficient home improvements this year, ensure you have the receipts to claim credits or rebates.

3. Enhanced Canada Workers Benefit—The 2024 tax year includes higher thresholds and expanded eligibility for the Canada Workers Benefit, a refundable tax credit for lower-income individuals and families. If you qualify, this credit can provide meaningful savings on your return.

4. New rules for alternative investments—The Canada Revenue Agency introduced new reporting guidelines for cryptocurrencies and other alternative investments in 2024. If you’ve traded or held these assets, ensure you’re compliant with the reporting requirements to avoid penalties.

Proactive steps for a stress-free tax season

• Gather your documents—Get organized now by collecting receipts for charitable donations, medical expenses, and any business-related costs.

• Review your income sources—If you’ve had a significant change in income this year, consider whether you need to adjust withholdings or take additional steps to reduce taxes.

• Meet with a professional—A tax advisor can help identify strategies you might not have considered and ensure you’re maximizing deductions and credits.

Why proactive tax planning matters

Taking time for year-end tax planning can produce significant benefits when you file your 2024 return next spring. Small actions now can lead to significant savings, leaving you with more money to save, invest, or pay down debts.

Remember, the tax landscape changes annually and staying informed is key to making the most of available opportunities. Whether you’re focused on retirement, a first home, or maximizing your family’s financial resources, there’s no better time than now to act.

Make the most of the remaining weeks of 2024 and start the new year with confidence, knowing you’ve done what you can to minimize your tax bill.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.