Smarter planning for a changing tax landscape: Insights from Michelle Munro and Jacqueline Power - January 27, 2026

Tax bracket updates and capital gains policy

Federal tax brackets have been adjusted for 2026. The lowest brackets have been reduced by 1 percent, which Michelle noted could work out to approximately $750 of annual savings for a couple.

The discussion also addressed the capital gains inclusion rate. The previously proposed increase has been cancelled, providing clarity after an extended period of uncertainty. Jacqueline explained that the cancellation allows planning to continue around the existing inclusion rate.

Refinements to bare trust reporting

Recent changes to trust reporting have affected many households. Rules introduced around 2020 expanded reporting expectations and raised questions about whether everyday arrangements, such as joint property ownership or in trust accounts for minors, required filings.

Three important situations that no longer require filing under the updated rules:

1. Small bare trusts with assets under $50,000 are exempt.
2. Related party trusts with assets under $250,000 also do not need to file, provided the trustee is an individual related to the beneficiary.
3. Parents added to a child’s property title solely for mortgage qualification no longer trigger bare trust reporting.

These changes remove a significant amount of unnecessary filing and better reflect the intention of the rules, which is to focus on more complex trust structures rather than routine family arrangements.

Corporate class structure and distribution timing

Corporate class structures combine multiple funds under a single corporation, allowing income and expenses to be pooled. As a result, distributions generally consist of Canadian dividends and capital gains rather than interest or foreign income, which can be taxed at higher rates.

Capital gains distributions for 2026 will occur within the 60-day period following the November year end. This places the taxable event in the 2026 calendar year and aligns reporting with the April 2027 tax season. Michelle noted that the structure did not experience trapped income in 2025, reflecting ongoing monitoring of interest and foreign income within the corporate class environment.

Fidelity’s Tax-Smart CashFlow^® and its applications

Jacqueline provided an overview of Fidelity’s Tax-Smart CashFlow feature, which delivers monthly payments that are primarily return of capital. Because Return of capital (ROC) does not increase taxable income, investors can draw cash flow throughout the year while deferring capital gains until units are sold.

During the discussion, Michelle and Jacqueline outlined several practical ways you can incorporate this feature into long‑term planning:

• Portfolio rebalancing: people with overweight non‑registered positions can redirect ROC payments into other funds, allowing them to rebalance gradually without triggering immediate capital gains.
• Retirement transitions: As you move toward more conservative portfolios, redirected ROC allows allocations to shift in a tax‑sensitive way, which is an important consideration when approaching retirement.
• Charitable giving: Because ROC reduces a fund’s adjusted cost base over time, investors can later donate appreciated units in kind, resulting in a zero capital gains inclusion rate on the donated amount and a charitable receipt for the full market value.
• Protecting income‑tested benefits: Since ROC does not increase net income, the feature can help avoid or reduce OAS clawbacks and maintain other income‑tested benefits.
• Flexibility: Investors retain control over their cash flow by switching between series to pause or resume distributions as their needs and tax circumstances change.

Registered accounts and the first home savings account

Several account types and contribution limits were highlighted as part of the 2026 landscape.

• RRSP: The limit for 2026 is $33,810. Contributions made during the first 60 days of the year may be applied to either the 2025 or 2026 tax return.
• TFSA: The annual limit remains $7,000. Individuals who have been eligible since 2009 and have not contributed may now have $109,000 in available room.
• FHSA: The First Home Savings Account, launched in 2023, offers an annual contribution limit of $8,000 and a lifetime limit of $40,000. Contribution room begins once the account is opened, and qualifying withdrawals for a first home are tax free.
• RESP: The lifetime contribution limit remains $50,000. Contributions may be eligible for a 20 percent annual grant up to $500, with a catch-up opportunity up to $1,000 when contributing $5,000.

Conclusion: Looking ahead to 2026