Wilmot George, CFP, TEP, CLU, CHS
Managing Director, Tax and Estate Planning, Canada Life
As we approach year-end, many Canadians are reviewing year-end tax planning strategies to determine which ones might best apply to their situation. While there are many strategies, here are three investment-related concepts investors can consider to enhance their tax positions for 2025 and beyond.
Tax loss selling
Year-end is an ideal time to review investment portfolios to determine where it might make sense to trigger:
- capital gains to offset current or prior year capital losses.
- capital losses to offset current or prior year capital gains.
Where capital losses exceed capital gains in a given year, an investor can carry back net capital losses for use in any of the three previous years or carry them forward for use in any future year.
Thinking back to 2022, the opportunity to use 2025 net capital losses against realized capital gains from 2022 is about to roll off the calendar. An investor can apply net capital losses realized before year-end to any of 2022, 2023 or 2024 to create a tax refund for those years. Investors can check their notices of assessment (NOAs) for those years to see what their capital gain or capital loss positions were.
2022 will soon be out of reach. Triggering capital losses in 2025 will not only offset current year capital gains but it will also allow net capital losses to be carried back for use in 2024, 2023 or 2022, potentially resulting in a tax refund for those years.
It’s important to note that to claim a capital loss for 2025, the loss must settle before year-end. With a T+1 settlement date for securities, Dec. 30, 2025, would be the last day to trigger a capital gain or loss for the transaction to settle by year-end. If an investor doesn’t meet this deadline, they won’t be able to claim this transaction for 2025, potentially exposing their current year capital gains to taxation.
As always, when triggering capital losses, investors should be mindful of the superficial loss rule which can work to frustrate capital loss planning if not careful. To prevent transactions done solely for tax purposes, a capital loss will be denied and deferred in certain circumstances. For example, if an investor had no real intention to dispose of a capital asset but disposed of it at a loss only to repurchase identical property within 30 days before or 30 days after the sale, the loss would be denied and deferred until the repurchased property is eventually sold. This superficial loss rule normally applies when an investor or an “affiliated person” (including a spouse, common-law partner, certain controlled corporations or certain trusts) acquires identical property within the 60-day superficial loss period.
Similarly, if an investor attempted to trigger a loss by transferring depreciated assets “in-kind” to the seller’s registered retirement savings plans (RRSPs) or tax-free savings accounts (TFSAs), the capital loss would be denied because RRSPs and TFSAs are considered “affiliated persons” for these purposes. To avoid this challenge, a Canadian investor can consider selling depreciated securities and, assuming available contribution room, contributing cash to their RRSP or TFSA. They can then wait 31 days to clear the superficial loss period before reacquiring the original investment.
TFSA withdrawals before year-end
When TFSAs were launched in 2009, the federal government promoted them as a “flexible registered account designed to help Canadians with their different savings needs over their lifetime.
- tax-free investment income
- the ability to gift to a spouse or common-law partner to maximize contribution room between a couple
- the ability to recontribute amounts withdrawn as early as the following year without requiring “new” contribution room
When it comes to year-end tax planning, if a TFSA holder is considering a withdrawal from their account, they should consider making the withdrawal before the end of 2025. Doing so will allow for recontributions as early as Jan. 1, 2026, as opposed to having to wait until January 2027 if they made the withdrawal in 2026.
Example scenario
Rhonda regularly contributes to her TFSA and has no contribution room for the current year and no room has carried forward from prior years. Because she needs to fund a home renovation, Rhonda is considering a $10,000 withdrawal from her TFSA. What’s the impact of a December 2025 withdrawal versus one in January 2026?
|
Withdrawl date |
Withdrawl amount |
Contribution room |
||
|---|---|---|---|---|
|
2025 |
2026 |
2027 |
||
|
December 2025 |
$10,000 |
$0 |
$17,000 |
$7,000* |
|
January 2026 |
$10,000 |
$0 |
$7,000 |
$17,000* |
* Assumes TFSA dollar limit for 2027 will be $7,000 and no carry forward room from prior years.
Age 71? Consider one final RRSP contribution (and maybe an overcontribution)
Remember, Dec. 31, 2025, is the last time Canadians who turned 71 in 2025 can contribute to an RRSP unless they have a younger spouse or common-law partner.
Because RRSPs must be converted to RRIFs by the end of the year in which the RRSP annuitant turns 71, the opportunity to contribute to an RRSP beyond this point isn’t available. This applies even if the RRSP holder has unused contribution room and would mean the loss of this room.
An exception applies if the RRSP holder has a younger spouse or common-law partner. In this case, the older spouse can contribute to a spousal RRSP for the younger spouse to make use of the contributor’s unused contribution room. They can do this until the end of the year in which the younger spouse reaches age 71, at which point the spousal RRSP must be converted to a spousal registered retirement income fund (RRIF).
Example scenario
Conrad, a widowed senior, turned 71 in 2025. For 2025, his unused RRSP contribution room is $10,500 from part-time employment and rental income earned in 2024. Because Conrad must convert his RRSP to a RRIF before the end of the year, his final opportunity to contribute to an RRSP would be Dec. 31, 2025. Should Conrad miss this opportunity to contribute, his unused room will be lost unless he enters a married or common-law relationship with a spouse who is age 71 or younger, allowing for contributions to a spousal RRSP.
Single Canadians with maximized RRSP contributions who turned 71 in 2025 can consider a one-time RRSP overcontribution in December before converting their RRSP to a RRIF. This can make sense if the RRSP annuitant had earned income (for example from employment, self-employment or, rental income) in 2025 that creates RRSP contribution room for 2026. While an RRSP overcontribution penalty tax of 1% would normally apply for the month of December, new RRSP contribution room would be available effective Jan. 1, 2026. Depending on the amount of the overcontribution, this would absorb the excess and cease the penalty tax going forward. The contributed amount could then be deducted for 2026 or any future year to provide tax savings for the year and tax-deferred growth going forward.
Year-end is a busy time for many. Amid planning for the holiday season, investors should be reminded of appropriate tax planning strategies to consider before year-end to improve their taxable position for the current year and beyond.
This should not be construed as legal, tax or accounting advice. This material has been prepared for information purposes only. The tax information provided in this document is general in nature and each client should consult with their own tax advisor, accountant and lawyer before pursuing any strategy described herein as each client’s individual circumstances are unique. We have endeavored to ensure the accuracy of the information provided at the time that it was written, however, should the information in this document be incorrect or incomplete or should the law or its interpretation change after the date of this document, the content provided may be incorrect or inappropriate. There should be no expectation that the information will be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise. We are not responsible for errors contained in this document or to anyone who relies on the information contained in this document. Please consult your own legal and tax advisor.
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