The way we conduct and report every transaction can have significant tax implications. You may be an employee, and your employer deducts tax from your salary. But one person plays many roles. An employee can also be an investor, a homebuyer, and a small-business owner. And one faces tax in each role, which makes tax planning an ongoing activity. Still, many leave tax planning to December.
Now it’s time to bid adieu to 2025. With just a few days left until December 31, it’s time to accelerate your tax planning and execute pending transactions to reduce your 2025 tax bill.
A Checklist for Year-End Tax Planning
Save the Date: First things first, mark the following dates:
- December 15, 2025: Time to pay your last advanced tax installment for the 2025 tax year.
- December 30, 2025: It’s time to settle all pending trades and securities investments you want to claim capital gain or loss for.
- March 2, 2026: Your last chance to make Registered Retirement Savings Plan (RRSP) contributions that can be deducted from your 2025 taxable income, thereby reducing your tax bracket and tax liability. The maximum RRSP limit for 2025 is $32,490.
- April 30, 2026: Employees, it’s time to file 2025 personal income tax returns and also pay the final tax to avoid a late filing penalty and late payment interest on income tax. Self-employed individuals should pay any income tax due for 2025. They can file returns by June 15, 2026.
Things to do Before December 30, 2025
Business or Salary Income
Charity: An individual earning income from a business or a salary can make donations to charity before December 30 to reduce their tax. The first $200 in charitable contributions receives a 15% federal tax credit, and any amount above that receives a 29% federal tax credit. However, if your income is above $253,414, donations of $200 or more will qualify for a 33% federal tax credit. This donation tax credit is available on donations up to 75% of your annual net income.
Tip: If you have a spouse, you can club your donations to exceed the $200 threshold, and the higher-income earner can claim the 29% or 33% tax credit.
If you make donations in kind, taxation rules change. Publicly traded securities donated to charity will be marked at fair market value. So if you purchased shares worth $1,000 and donated them when they were worth $2,000, you get a donation tax credit of $2,000 and also save on capital gains tax. However, the Alternative Minimum Tax (AMT) rules could apply if your taxable income is over $177,882.
As you can see, donating to a registered charity, when done in three different ways, has three different tax implications. This needs careful planning to understand where the benefit is maximum in your case.
TFSA Withdrawals: Tax-Free Savings Account (TFSA) contributions are not tax-deductible, but withdrawals are tax-free. Moreover, the withdrawals you make get added back to the TFSA contribution room in the following tax year. So if you are considering withdrawing some securities, December 30, 2025, is the deadline, as that withdrawal amount will be added to the TFSA contribution room on January 1, 2026, over and above the 2026 limit of $7,000.
Business or Salary Income Earners Who Are Home Buyers
FHSA: If you want to buy your first-ever house, you can also open a First Home Saving Account (FHSA) and contribute $8,000. This contribution, if made by December 31, 2025, can be deducted from your 2025 taxable income.
Even if you do not intend to buy a home but are eligible for FHSA, consider investing in it, as you can later transfer that money to RRSP tax-free without affecting your RRSP contribution room. So high-income earners can use both FHSA and RRSP contributions to reduce their tax bracket.
Investing Income
The biggest challenge is income from investments, such as property, securities, and your business shares. Dividends, interest, and capital gain are taxed differently depending on the structure you use to earn that income.
Bare Trust Reporting Requirements: If you are a legal owner of a real estate property, bank account, or non-registered investment account, whose benefits are being availed by others, you may qualify as a bare trust and will have to comply with bare trust reporting requirements. A bare trust is one where the owner of the asset acts as an agent for another person and has no beneficial ownership of the account or assets. In such a scenario, you become the trustee of a bare trust and are required to file a T3 Trust Income Tax and Information Return, including Schedule 15 (T3 Return).
Alternate Minimum Tax: If you earn mainly from investment income, capital gain, royalty, or any other passive source, be mindful of AMT. AMT excludes several tax-deductible items and imposes a flat tax rate to determine AMT. So even if your tax liability is zero in the normal tax calculation, it may be high under AMT. This issue does not arise with active income earners, as they pay significant taxes.
Investment-Related Expenses: If you invest using leverage, ensure you pay the interest on that loan by December 31, 2025, as the interest expense is tax-deductible. If you paid interest on a loan you took to buy a property that earns you income or paid investment counselling fees for non-registered accounts, those expenses can be deducted. However, commissions and transaction fees paid to buy securities and assets are not deducted directly from taxable income. They are added to your asset cost and help you reduce capital gain tax when you sell the asset.
Deferring or Realizing Capital Gains
This is a segment where you should seek professional help, as the CRA has several rules to monitor tax evasion.
Tax-loss selling is when you sell an asset at a loss and use the capital loss to reduce capital gain. The CRA has a superficial loss rule. If you sell a security or asset at a loss and buy it back within 30 days of sale, it is considered a superficial loss, and the CRA can deny the capital loss deduction.
The CRA also uses the Alternative Minimum Tax. It is essential to calculate your AMT if you made a significant capital gain.
The decision to realize or defer a capital gain also depends on how much your tax liability is for the year. From January 1, 2026, the capital gains inclusion rate will increase to 66.67% on gains above $250,000 for individuals. For gains below $250,000, the inclusion rate will remain 50%. Be careful how much gain you want to realize in which year, as the capital gain inclusion will be added to your taxable income and can increase your tax bracket.
The year-end tax list differs for employers, business owners, and those aged 65-71. Tax depends on the way you earn income and how you spend it. The above list covers only some common items to help you with year-end tax planning.
Contact Glenn Graydon Wright LLP in Oakville to Help You with Year-End Tax Planning
It is important to seek professional help with tax matters to stay compliant, report all income, and claim tax benefits where applicable. At Glenn Graydon Wright LLP, our accountants and tax experts provide services such as tax filing and Year-round/ Year-end planning. To learn more about how Glenn Graydon Wright LLP can provide you with the best tax expertise, contact us online or by telephone at XXX-XXX-XXXX.