^InsightsSmart Year-End Tax Moves for Canadian Investors

As the year draws to a close, many investors focus on performance, market outlooks, and portfolio positioning for the year ahead. But one of the most impactful ways to improve long-term returns often comes not from the markets themselves, but from what you do before December 31.

Year-end tax planning is an essential part of managing wealth. It provides an opportunity to take control of your after-tax returns and to ensure your investment strategy aligns with your financial goals in the most efficient way possible. Many of these opportunities expire when the calendar turns, so acting early can make a meaningful difference.

From harvesting losses to maximizing deductions and charitable giving, here are key strategies every Canadian investor should consider before year-end.

1. Tax-Loss Harvesting: Turning Losses into Opportunities

Tax-loss harvesting remains one of the most effective ways for investors to reduce taxes and enhance long-term after-tax performance. It involves selling investments that are trading below your purchase price in order to realize a capital loss. That loss can then be used to offset capital gains you realized elsewhere in your portfolio during the year.

In Canada, only fifty percent of capital gains are taxable, and likewise, only half of a capital loss can be applied to reduce taxable gains. According to the Canada Revenue Agency’s capital gains guide, this treatment can significantly lower the tax you pay on investment gains. For example, if you realized twenty thousand dollars in capital gains earlier this year, realizing twenty thousand dollars in capital losses can effectively eliminate the tax on that amount.

Tax-loss harvesting is not about market timing or abandoning sound investments. It is about improving tax efficiency without changing the overall direction of your portfolio. In many cases, investors can maintain similar market exposure by reinvesting in a comparable security or exchange-traded fund that is not considered substantially identical. This ensures continued participation in the market while still benefiting from the realized loss.

One important rule to remember is the superficial loss rule. If you sell a security at a loss and repurchase the same or a substantially identical one within thirty days before or after the sale, the loss will be denied for tax purposes. The loss is instead added to the adjusted cost base of the repurchased investment. For that reason, it is crucial to coordinate any repurchases across all accounts, including RRSPs, TFSAs, and even a spouse’s accounts.

Periods of market decline often create short-term paper losses that can be turned into real tax benefits. Even when markets recover, those realized losses can be carried forward indefinitely to offset gains in future years, creating a valuable tax asset that compounds over time.

2. Crystallizing Gains for Future Benefits

While most investors focus on realizing losses, there are times when it can make sense to intentionally realize gains. This is known as tax-gain harvesting. It can be especially useful for investors who expect to be in a higher tax bracket in future years or who have accumulated large unrealized gains that could eventually trigger significant taxes.

For instance, retirees in the early years of retirement—before drawing Canada Pension Plan or Old Age Security—often have relatively low taxable income. Realizing some capital gains during these lower-income years can reset the cost base of investments at a manageable tax rate and reduce the size of future taxable events.

The CRA’s adjusted cost base rules explain how the cost base determines future taxable gains. The key is to coordinate gain harvesting within the context of your broader financial plan. Consider how it interacts with your RRSP contributions, charitable donations, and potential clawbacks of government benefits.

3. Maximizing RRSP and TFSA Opportunities

Registered accounts are powerful tax-planning tools, and year-end is an ideal time to review your contribution strategy.

While RRSP contributions can technically be made until sixty days after year-end, making a contribution before December 31 can accelerate your tax deduction into the current year. RRSPs allow you to deduct contributions against income, which can lower your taxable income and reduce your tax bill, particularly in high-income years.

The Tax-Free Savings Account does not offer a deduction but provides tax-free growth on all income and gains. If you have unused contribution room, topping up before year-end ensures that your investments begin compounding tax-free sooner. For those who made TFSA withdrawals earlier in the year, it is important to wait until January 1 before recontributing the same amount to avoid overcontribution penalties.

One useful approach is to use proceeds from tax-loss harvesting to fund TFSA contributions. By reinvesting in a tax-sheltered account, you can maintain exposure to the market while protecting future gains from taxation entirely.

4. Charitable Giving and Gifting Appreciated Securities

Year-end is also a popular time for charitable giving, and the tax benefits can be significant. Donations must be made by December 31 to qualify for a tax credit in the current year, and donating publicly traded securities that have appreciated in value offers an especially efficient strategy.

When you donate appreciated securities directly to a registered Canadian charity, you receive a tax receipt for the fair market value of the securities and the capital gain is completely eliminated. This provides a double benefit: you support a cause you care about while reducing your tax bill.

If you want to streamline the process, CanadaHelps provides an easy way to donate securities online to thousands of charities across Canada. Donating securities rather than cash can create a much greater impact at a lower after-tax cost.

5. Income Splitting and Family Planning

Families can also benefit from year-end tax planning. One of the most effective strategies remains spousal RRSP contributions. By contributing to a spousal RRSP, the higher-income spouse can deduct the contribution today while shifting future taxable withdrawals to the lower-income spouse, reducing the overall family tax burden.

Income-splitting loans between spouses or family members can also create long-term benefits, especially while Canada’s prescribed interest rate remains relatively low. The idea is to lend funds to a lower-income family member at the prescribed rate, who then invests the money. The investment returns, net of the interest paid, are taxed in the lower-income individual’s hands, effectively shifting income within the family.

For families with children or dependents, it is also important to review contributions to Registered Education Savings Plans and Registered Disability Savings Plans. Both accounts offer government grants that are contingent on contributions made before year-end. Missing that deadline could mean losing an entire year of growth and government support.

6. Corporate and Investment Account Review

For incorporated business owners and professionals, the end of the year is the time to review both personal and corporate tax strategies. Consider whether it makes sense to take additional salary or dividends before year-end, or to defer income to the next fiscal year if appropriate.

Review your corporate investment accounts to ensure you are optimizing the balance between active and passive income. Business owners should pay attention to refundable dividend tax on hand accounts, capital dividend accounts, and other corporate tax balances that can affect the overall tax efficiency of the business.

For more detail, the CRA’s corporate tax overview outlines how corporate income and dividends are taxed. The National Bank’s guide for incorporated professionals also explains how to structure compensation efficiently.

If you have a holding company with significant investments, now is the time to ensure the mix of assets remains appropriate. Interest-bearing investments may be better held in registered or corporate accounts depending on the tax rate and structure.

7. The Power of Planning Ahead

Tax planning should not be treated as a once-a-year exercise. The most effective strategies are often those implemented gradually and maintained throughout the year. However, the final months of the year are an ideal checkpoint to ensure you have taken advantage of every available opportunity before the window closes.

By harvesting losses, optimizing contributions, and strategically timing income and gains, investors can preserve more of what they earn and build wealth more efficiently over time.

At Verus Financial, we believe true wealth management extends beyond investments. It includes careful attention to taxes, estate planning, and long-term strategy. As you review your portfolio heading into the new year, take the time to ensure your plan is working as efficiently as possible for you and your family.

If you would like to discuss how these strategies apply to your situation, book a year-end planning conversation with our team.

References

National Bank – Incorporating Your Practice
Canada Revenue Agency – Capital Gains
Advisor.ca – Tax-Gain Harvesting: When It Makes Sense
CRA – Adjusted Cost Base
CRA – RRSP Information
CRA – Tax-Free Savings Account
CRA – Charities and Giving
CanadaHelps – Donate Securities
CRA – Spousal RRSPs
Government of Canada – RESP Overview
Government of Canada – RDSP Overview
CRA – Corporate Taxes