The end of 2024 is near, however there is still time to take care of some tax planning items to ensure you don’t miss out on year-end tax savings!
Capital Gain Loss Harvesting
In previous years, a common tip was to consider selling any stocks with losses prior to December 31st and to apply the losses against any gains that may have occurred during the year or in the previous three years. With corporations, in particular, and the new capital gains inclusion rate increasing from 50% to 66.67%, care should be taken when to realize these losses and whether they should be carried back to one of the previous three years or carried forward to eliminate future capital gains tax. Triggering losses before the end of 2024 may result in you only saving tax at the 50% inclusion rate whereas the losses may be better utilized if they are triggered in 2025 or beyond and used to reduce the tax at the higher 66.67% inclusion rate.
A different analysis is required for individuals because of the lower inclusion rate on the first $250,000 of capital gains, as discussed below.
Should you conclude in your analysis that is to your benefit to trigger losses, the superficial loss rules will require you to avoid repurchasing the same stock for more than 30 days.
Capital Gain Triggering
On June 25, 2024 new capital gains tax rates were introduced. For individuals, the first $250,000 of capital gains are subject to a 50% inclusion rate and any gains in excess of this amount subject to a 66.67% inclusion rate. Most planning to trigger capital gains happened prior to that date. However there is now a potential incentive to consider triggering capital gains annually for individuals with larger investment portfolios. Triggering capital gains up to the $250,000 inclusion rate could help avoid future capital gains at the higher 66.67% inclusion rate. To allow trades to process on time ensure any trades are completed by December 30th. There are no “superficial gain” rules, therefore you may immediately repurchase the stock sold without waiting for 30 days as is required with losses.
First Home Savings Account (“FHSA”) Contributions
The deadline to contribute is December 31, 2024 to be able to deduct the contribution on your 2024 tax return. FHSA room is only created once an account is opened (even if a contribution isn’t made). You may carry forward up to $8,000 of unused contribution room each year. For example, if you contribute $3,000 in year one from the $8,000 of annual contribution room, you can contribute up to $13,000 in year two ($5,000 of unused room carried forward from year one plus $8,000 of participation room from year two).
See previous articles discussing the program in more detail.
Registered Retirement Savings Plan (“RRSP”) Withdrawals
If your retirement planning projects your mandatory Registered Retirement Income Fund (“RRIF”) withdrawals at age 72 to be significant, one planning tip is to consider withdrawing from your RRSP early to help limit the RRIF income. This could help avoid future higher tax brackets or Old Age Security (“OAS”) clawback.
If your spouse has an RRSP account but relatively low income, consider annual RRSP withdrawals prior to age 65 when dividend income splitting becomes available. The personal tax on the spouse’s RRSP withdrawal may be lower than the tax on a dividend from the corporation to the practice owner.
Donations
If you are feeling charitable, consider making any donations before December 31, 2024 to be able to apply them as a tax credit in 2024. If you have any public company shares sitting in a gain position in your non-registered investment account, consider donating those shares for twice the tax benefit. Not only do you get a donation tax credit, but you also do not pay any capital gains tax on the gain.
For large donations, be wary of the new Alternative Minimum Tax rules that took place on January 1, 2024 that may limit some of the benefit of the donation.
