Jared Pilon
As 2024 draws to a close, proactive tax planning is essential for individuals and businesses to optimize their financial outcomes ahead of the 2025 tax season. This year’s economic landscape, marked by fluctuating interest rates and persistent inflation, has underscored the importance of creating financial and tax strategies. By addressing tax considerations now, you can effectively manage tax obligations, access available deductions, and strategically position your finances for the year ahead.
Top issues to consider heading into 2025
Here are the primary tax planning priorities to consider before year-end:
- Critical tax deadlines
- Investment strategy alignment
- Changes in family or business structure
- Retirement and estate planning
Tax deadlines
The payments that need to be made before December 31, 2024 to qualify as a deduction on your 2024 personal income tax return include:
- Charitable donations
- Medical expenses
- Union & professional dues
- Investment fees, interest, etc.
- Spousal support payments
- Political contributions
- Interest on student loans
- Contributions to an RRSP if you turned 71 in 2024
** Deductible contributions to your RRSP or a spousal RRSP are due on March 3, 2025. Contact Legacy Accounting in early January if you need assistance with RRSP tax planning.
Investment goals
Tax Free Savings Account
You can contribute up to $7,000 into a TFSA in 2024. To contribute to a TFSA, you must be over 18 and a Canadian resident. If you have not made contributions in previous years and you turned 18 before the year 2009, you may be able to contribute up to $95,000 in total. Ensure you monitor current year withdrawals when making a yearend contribution to ensure you are not subject to over contribution rules and penalties.
Family Situation
Residence
Your physical residence as of December 31, 2024 determines which jurisdiction your 2024 personal income will be taxed in. If you are planning to move, you can compare the tax rates of your new and old jurisdiction and schedule your move based on this information.
House sale
Even if you are claiming the principal residence exemption in full on your tax return, you must report the sale of your personal residence to ensure that the disposal is not later reclassified as a taxable capital gain. If claiming the full exemption, you will need the address, year of purchase and the sale proceeds to complete this form on your tax return.
Retirement & estate planning
RRSP contributions
You have until March 3, 2025 to make qualifying contributions to your RRSP and receive a deduction on your 2024 personal tax return. Ensure you review your 2023 personal tax notice of assessment or your online CRA account to determine your RRSP contribution room. Contributions over that limit are subject to penalties.
Your applicable tax bracket determines the tax deferral of RRSP contributions made. For example, if your taxable income is in the 4th bracket and subject to combined federal and provincial tax in Alberta of 38%, you can expect a deferral of $380 for every $1,000 contributed (This example only applies to incomes within this bracket).
A spousal RRSP should be considered if you expect an unequal retirement income with your spouse.
Other planning considerations
Registered education savings program
If you have a RESP set up for your children, you can contribute up to $2,500 per year to gain access to the Canada Education Savings Grant program. The CESG can add a maximum of $500 to your RESP each year (up to $7,200 per beneficiary under 18). If you can’t make the contribution before December 31, 2024, the grant can be carried forward to a subsequent year (within restrictions).
Tax instalments
The final tax instalment for the year (if applicable to your situation) is due on December 15th. To reduce the non-deductible instalment interest that may be applied to you, ensure that all applicable instalments for the year are paid as soon as possible.
Charitable donations
If you made a charitable donation before December 31, 2024, you may be eligible to receive a donation credit. Qualifying charities will provide you with a tax receipt to be filed.
You can receive a credit of 15% credit for the first $200 in donations each year and 29% thereafter, up to 33% for those in the top tax bracket.
First Home Savings Account (FHSA)
A First Home Savings Account (FHSA) can help you save for a down payment on a first home tax-free. To open an FHSA, you must be a Canadian resident, at least 18 years old and under age 71, and not have owned a home in the past four years. You can contribute $8,000 annually to your FHSA, up to a lifetime total limit of $40,000. If you made a contribution in 2024 by December 31, that annual contribution is tax deductible. You can also transfer up to $8,000 annually from your RRSP; this will reduce the amount you can contribute and deduct.
You can withdraw from your FHSA, either as a single withdrawal or a series of withdrawals. If you have withdrawn from your FHSA and have met all of the conditions to make a qualifying withdrawal, it will be tax-free.
Conclusion
Your personal tax return is filed just once a year, but it's important to take proactive steps throughout the year to minimize your tax liability and enhance your overall financial situation. By following these strategies and working with Legacy Accounting LLP, you can strengthen your tax position as you approach 2025.
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Posted: 12/4/24
