Year-End Tax and Financial Planning Checklist

As the calendar year comes to a close, it’s a good moment to review tax and financial planning opportunities. Some actions require urgent attention before year-end, while others are best prepared now to set up an efficient tax position for the year ahead. Below are practical year-end considerations for registered accounts, tax-loss selling, tax installments and more.

RESP contributions and withdrawals

Registered Education Savings Plans (RESPs) help families save for post-secondary education and provide access to federal grants. The Canada Education Savings Grant (CESG) can add up to $7,200 over a beneficiary’s lifetime, based on eligible contributions. The federal government matches 20% of up to $2,500 of annual contributions, and you can catch up on missed grant eligibility for prior years (up to $2,500 of catch-up contributions in a year). Note that the lifetime contribution limit per beneficiary is $50,000.

If you’ve missed contributions and the beneficiary is a teenager, year-end is a useful deadline to consider. To be eligible for CESGs, the deadline to contribute is December 31 of the year the child turns 17. Also, to receive CESGs when the beneficiary is 16 or 17, they generally need at least $2,000 in lifetime contributions or at least four years with contributions of $100 or more by the end of the year they turn 15.

Year-end is also a time to think about RESP withdrawals. Original contributions can be withdrawn tax-free. Investment growth and government grant amounts paid to a student in eligible post-secondary education are called Educational Assistance Payments (EAPs) and are taxable in the student’s hands. If the student has low income this year, drawing EAPs can use their available basic personal amount and reduce overall tax.

RRSP withdrawals and RRSP-to-RRIF conversion

Contributions to a Registered Retirement Savings Plan (RRSP) can reduce taxable income, but they don’t need to be made by December 31 — you have 60 days after year-end to contribute and claim the deduction for the prior tax year. If you’re retired or semi-retired, year-end is a good checkpoint to review RRSP or Registered Retirement Income Fund (RRIF) withdrawals.

If you are in a lower tax bracket this year and expect higher income later, consider realizing more RRSP or RRIF income now while your tax rate is lower. If you’re age 64, one strategy is converting your RRSP to a RRIF before the year you turn 65 so that withdrawals in the year you turn 65 can be eligible for pension income splitting with a spouse or common-law partner. Keep in mind that RRIFs require annual minimum withdrawals once established, so this may not suit those with variable income or who remain employed.

If you turn 71 this year, conversion is mandatory: your RRSP must be converted to a RRIF or used to purchase an annuity by December 31 of the year you turn 71. Financial institutions typically contact account holders in advance to arrange the conversion.

TFSA contributions

Tax-Free Savings Accounts (TFSAs) offer tax-free growth and flexible withdrawals. TFSA contribution room carries forward, so if you don’t use your available room by December 31 you can contribute it in future years. New TFSA room is added on January 1 each year, and any withdrawals in the prior year are also added back to your contribution room the following January.

Because funds in a TFSA grow tax-free, it usually makes sense to contribute early in the new year to maximize tax-free compounding.

FHSA contributions and withdrawals

The First Home Savings Account (FHSA) is designed for first-time home buyers who haven’t owned a home in the previous four years (or who lived in a home owned by a spouse or common-law partner). FHSA contributions are tax-deductible and qualifying withdrawals for an eligible first home are tax-free. Unlike RRSP contributions, FHSA contributions must be made by December 31 to count for that tax year — there is no 60-day extension — so year-end can be an important deadline.

The annual FHSA contribution limit is $8,000 and you can catch up on unused annual limits from prior years up to $8,000 per year, subject to a lifetime cap of $40,000. Contribution room only begins to accumulate after you open the account, so opening it before year-end may be worthwhile even if you do not contribute immediately.

FHSAs remain open until the account has been open 15 years, until the end of the year you turn 71, or until the end of the year following a qualifying home purchase. Unused FHSA funds can be transferred to an RRSP or RRIF without penalty and without reducing your RRSP contribution room.

Tax installments

If you pay quarterly tax installments—common for self-employed individuals, retirees with untaxed investment income or those with significant non-source-deducted income—year-end is a chance to check whether your installment amounts are on target. Missing required installments can trigger interest and penalties; the prescribed interest rate on underpaid installments is currently high, so correcting any shortfall can be critical.

With a December 15 installment date, the close proximity to year-end often makes it possible to forecast your taxable income more accurately. Running a pro forma tax calculation can reveal whether paying the December installment in full might produce a refund, in which case you could reduce or skip that payment to preserve cash.

Capital gains and losses

Tax-loss selling is a common year-end move where investors sell positions in taxable accounts that have declined in value to realize capital losses. Those losses can offset capital gains realized during the year, reducing tax. If you end the year with a net capital loss, you can carry it back three years to recover taxes paid on prior capital gains or carry it forward indefinitely to offset future capital gains.

Conversely, if you expect to realize a gain soon but have low income this year, consider realizing that gain before year-end to benefit from a lower tax bracket now. Timing capital gains and losses with your income profile can produce meaningful tax savings.

Deductions and credits

Accelerating deductible expenses into the current year is a useful strategy for the self-employed. If you know you’ll incur a business expense early next year, buying it before year-end can bring the deduction into the current tax year. Similarly, charitable donations and medical expenses that you can control timing-wise may be shifted into the current year to obtain tax credits sooner.

Corporate planning

Incorporated business owners should review year-end compensation and corporate tax planning. Decisions about paying dividends, declaring bonuses, repaying shareholder loans or altering salary can affect payroll remittances, T-slip preparation and both personal and corporate tax liabilities for upcoming filing periods. Coordinate timing with your accountant so remittances and slips are handled correctly in January and February.

Start planning now for next year

While effective tax planning is a year-round activity, the weeks around year-end are a natural checkpoint to act on time-sensitive items and align your finances for the coming year. Discuss options with your accountant or financial planner, or, if you manage your own taxes, take time to review how these strategies may apply to your situation.

Read more about tax planning:

• Do you have to make quarterly tax remittances in Canada?
• How to consolidate your registered accounts for retirement income in Canada
• Is it better to be an employee or self-employed?
• Update on bare trust tax filing rules for 2024 and beyond