Year-end tax tips for 2025

These smart moves can help you avoid overpaying on your taxes

December is a time to relax, enjoy friends and family and maybe indulge in a few too many treats; it’s not usually when you think about taxes. While you should take a few moments for yourself, investing a little effort now to organize your financial affairs may spare you some stress in the spring and perhaps even help you find opportunities to minimize your 2025 tax bill.

Here are a few things to keep in mind when optimizing your tax bill this year.

1. Tax loss harvesting

December can be a good time to rebalance a portfolio in a non-registered account by selling stocks to offset capital gains with capital losses. But if you have a large unrealized capital gain, you may want to calculate your estimated tax bill before you sell. Fifty per cent of a capital gain is taxable.

Of course, if you have realized capital gains this year, you could offset the associated tax liability by selling securities with accrued losses before the end of the year. Keep in mind that a trade must be settled in the 2025 calendar year to be considered a 2025 disposition. Assuming a one-day settlement, a transaction must be initiated by December 30. Also, be aware of the superficial loss rules, which deny a loss if you or an affiliated person repurchases the disposed investment within 30 days before or after the date of the original sale.¹

Be mindful not to make changes to your investments purely for tax reasons. The merits of your investment should trump any tax considerations, so talk to your advisor or tax planner about which investments to sell.

2. Maximize your capital gains

Deferring the realization of capital gains to 2026 is another way to potentially minimize taxes. If a gain is realized in 2025, then tax on that gain would be due by April 30, 2026. If you wait until January to sell, then you won’t have to pay tax on that gain until April 30, 2027. Keep in mind that if you think you’ll be in a lower marginal tax rate in 2026, the tax on the deferred capital gain will also be lower. If you expect to be in a higher tax bracket next year, then your capital gains tax will also be higher, which may be a reason to consider accelerating capital gains.

3. Carry-back and carry-forward rules can soften the impact of a capital loss

One advantage of capital losses is they can be used to offset capital gains accrued in other years, including previous reporting periods. While the current year’s capital losses must first be applied to this year’s capital gains, any remaining losses can be carried back to offset capital gains earned in the past three years. To illustrate, 2025 losses would first be applied to 2025 capital gains before being carried back to offset gains in 2022 through 2024. While losses can only be carried back for a maximum of three years, unused capital losses can be carried forward and applied to capital gains in any future year.

4. Check your instalments

If you pay tax instalments, you’ll receive reminders from the Canada Revenue Agency (CRA) in February (for your March and June payments) and August (for your September and December payments). The amounts are based on your previous year’s income. December 15 is the deadline for your final quarterly tax instalment payment, so it’s important to make sure you’re not overpaying.

For example, if your income is heavily dependent on investments, but income from those assets has decreased in 2025, then you may owe less tax this year. That decrease in investment income won’t be reflected on your instalment reminders. To avoid possibly overpaying, carefully estimate your 2025 income and then make a final payment based on that calculation. The only caveat is that if your estimate is incorrect and you underpay income taxes for the year, you may be charged interest and penalties. Nevertheless, it is worth making the estimate to avoid overpaying. Although a tax refund is always enjoyable, a large refund doesn’t constitute good tax planning, given the reduced cash flow from mid-December until you receive your refund.

5. Pay expenses before year-end

Certain expenses must be paid before December 31 if you want to claim them on your 2025 tax return. Some of these include interest, investment management fees, child-care expenses, accounting fees and professional dues. Similarly, expenses that can be claimed as tax credits for 2025 must be paid by the end of the year, including charitable donations, political contributions, tuition fees and medical expenses.

6. Work from home? There may be deductions for that

If you work from home, you might want to consider the deduction for workspace-in-home expenses. The workspace must be either:

• The place where you mainly do your work (more than 50% of the time)
• Used exclusively for earning employment income on a regular and continual basis for meeting customers or other persons in the course of performing your job

This deduction may be available to you if your contract of employment requires you to pay the expenses, and the expenses were not reimbursable by your employer. As part of this process, your employer will have to complete and sign Form T2200 before you can claim this credit.

Common examples of deductible expenses include office supplies, long-distance phone calls, heating bills and a portion of your rent related to the home office. However, the cost of items such as furniture and computer equipment cannot be deducted (nor can a portion be claimed as deductible depreciation). Deductible employment expenses are a deduction on your personal income tax return.

As with all tax deductions, remember to keep track of your expenses. Having a paper trail of the receipts is important if you are audited and need to prove the deduction.

7. Gift securities instead of cash

If you are planning to make a charitable donation, consider making in-kind donations of publicly listed securities or mutual funds instead of cash. This strategy will allow the fair market value of the donated assets to be eligible for the donation tax credit and any capital gains on the donated assets will not be subject to tax. If you plan to claim the donation credit on your 2025 return, you must make your donation by December 31 (and it’s advisable to do it earlier, if possible). The administrative process for donating securities in-kind can take a while, so it’s best to do this well in advance of year-end to ensure the donation occurs in 2025.

8. Optimize your RRSP

Given the frenzy to make Registered Retirement Savings Plan (RRSP) contributions before the RRSP deadline (up to 60 days after the current year ends), it’s clear many Canadians appreciate the benefits of the tax-advantaged account. The next RRSP deadline is March 2, 2026. How to make the most of your RRSP? By contributing up to your allowable contribution limit for the year.

If you are 71 years old at the end of the year, you have until December 31 to take advantage of unused contribution room. By the end of the year you turn 71, you have a few options, including closing your RRSP and withdrawing the funds, which would be fully taxable, or transferring the funds to a Registered Retirement Income Fund (RRIF).

9. Take advantage of the FHSA account

Buying a home can be a challenge for many first-time homebuyers, but the First Home Savings Account (FHSA) aims to make saving for that down payment a little easier. When it comes to contributions, the FHSA works like an RRSP, in that they are tax-deductible. That means any amount you add to the account could reduce your taxable income that year.

For withdrawals, the FHSA works like a Tax-free Savings Account (TFSA), in that money withdrawn from an FHSA for the purpose of buying a first home is tax-free. You can contribute up to $8,000 per year, with a lifetime maximum of $40,000. For this to work, you must be a first-time homebuyer at the time the withdrawal is made, and the money has to go toward a qualifying home located in Canada. The tax advantages offered by the FHSA make it increasingly attractive among the registered accounts available in Canada.

10. Be aware of minimum annual RRIF withdrawals

You don’t need to make a withdrawal the year you set up your RRIF, but you will have to make minimum withdrawals in subsequent years. The minimum withdrawal amount is calculated by multiplying the fair market value of your RRIF holdings at the beginning of the year by a prescribed factor based on your that, that increases with age. RRIF withdrawals are added to your taxable income for the year. Your financial institution won’t withhold tax for minimum withdrawals, but it will withhold tax for withdrawals beyond the annual minimum.

11. Don’t miss out on the RESP grant

Registered Education Savings Plans (RESPs) can help parents and other family members save for a child’s post-secondary education in a tax-deferred account. The real benefit, though, comes from the Canada Education Savings Grant (CESG). The federal government grant matches 20% of your RESP contribution of up to $2,500 per child per year. If you max out the grant, that could help you save an additional $500 per year toward your child’s education, up to a lifetime maximum of $7,200 per child. If you haven’t contributed in previous years, the annual grant can be as much as $1,000 on a $5,000 contribution.

RESPs are funded with after-tax dollars, meaning that, unlike with RRSPs, contributions are not tax-deductible. Their benefit is derived from both the 20% CESG and the ability to grow on a tax-deferred basis before being used as an educational assistance payment for the beneficiary. Qualifying withdrawals are taxed in the beneficiary’s hands.

12. Save for Canadians with disabilities with an RDSP

The Registered Disability Savings Plan (RDSP) is a federal government program to help Canadians save for the long-term financial security of individuals with disabilities. The RDSP shares many similarities with the RESP. First, contributions made to an RDSP are not tax-deductible, but earnings are allowed to grow tax-deferred. Second, as with the RESP, the government also pays grant money into an RDSP, although using a different formula.

The RDSP grant is based on contribution amounts and the net income of the beneficiary’s family. The maximum grant for one year is $3,500, and the lifetime limit is $70,000. Grants are only available until the beneficiary is 49 years old, but you can contribute until the beneficiary is 59, with required withdrawals starting at age 60. Consider contributing on or before December 31 to maximize the income deferral and benefit from the grant.

13. Grow your savings faster with a TFSA

There’s no disputing the tax benefits of a registered account, but some limit the ways you can use that money. Not the TFSA. With a TFSA, all of your investment growth is completely tax-free, and you can use the funds however you like. Still, to make the most of this account, consider making any withdrawals you need in December. Why? Because you regain that contribution room in January of the following year (if you wait to move the money in January or onwards in 2026, you’ll have to wait until 2027 to reclaim that room).

The contribution room in the account has changed over the years, but its ability to help Canadians save hasn’t wavered. TFSA contribution room for 2026 currently sits at $7,000. If you’ve never contributed to the account before and you turned 18 in 2009 (or earlier), then you can contribute up to $109,000 as of 2026. Now is an excellent time to talk to your advisor about how to make the most of this contribution room and be ready to make your 2026 contribution in January.

Remember: early tax planning beats last-minute scrambling

Few people enjoy doing taxes, but as you have learned here, it’s to your advantage to keep some of these tax considerations top of mind heading into the end of the year. Take advantage of every tax-saving opportunity you can today; your future self will thank you. Your financial advisor can help you identify and take advantage of these potential tax savings. Do things right and you may even receive a little post-holiday “gift” from the CRA in 2026! Of course, these are just guidelines to help you make sure you’re asking the right questions. Taxes can be complicated and depend on your circumstances, so it’s important to talk to your financial and tax advisors to see what steps offer you the biggest benefit.