Year-end Tax Planning for Individuals

As year-end approaches, taking some time to review your financial affairs may yield significant tax savings. To ensure you leave no stone unturned, here’s a summary of some common year-end tax planning strategies.

Tax loss selling

If you’ve realized capital gains during the year, and you’re holding securities with unrealized losses, we will be looking for opportunities to offset those gains in your portfolio. Please rest assured that we will be diligent in avoiding the superficial loss rules.

Registered withdrawal timing

If you’re nearing retirement and expect to be in a lower marginal tax bracket for 2025 vs. 2026 or beyond, consider making an early withdrawal from your RRSP before year-end. The advantage of doing so is that you could pay less tax overall on the amount withdrawn. Doing so late in the year minimizes the amount of time that the taxes are withheld to the government.

Charitable donations

Making a charitable donation is one of the ways you can significantly reduce the personal income tax you pay. The final day to donate to a registered charity to claim the donation tax receipt on your 2025 income tax return is December 31, 2025.

TFSA contributions

If you have not yet done so, you can make your TFSA contribution for 2025 (up to $7,000) and catch up on any unused contribution room from 2009-2025 (a total of $102,000).

FHSA contributions

The deadline to contribute to a First Home Savings Account for deduction against your 2025 income is December 31, 2025. Unlike a TFSA, you only begin accruing FHSA contribution room when the account is open, and you can carry forward up to a maximum of $8,000 of unused FHSA contribution room to use in the following year. If you plan to contribute in 2026, consider opening the account in 2025 to allow additional contribution room in 2026 for a total of $16,000.

RESP contributions

Consider contributing to an RESP by December 31, 2025, if you haven’t already done so, or haven’t maximized your contributions, in order to take advantage of the government grant as well as the tax-deferred growth within the RESP.

Year-end expenses

Generally, you can deduct or claim a credit for certain expenses you paid in the year on your personal income tax return. Therefore, remember to pay all eligible investment management fees, tuition fees, deductible accounting and legal fees, childcare expenses, spousal support, medical expenses, and any business expenses (if deductible on your personal tax return) by December 31, 2025, if it’s your intention to deduct or claim them on your 2025 tax return.

Market Update

Market returns to the end of the third quarter have been quite robust with Canada outperforming the U.S. year to date.

During the quarter, following recent signs of weakening labour market conditions in Canada and the U.S., central banks in both countries have decided to reduce their benchmark interest rates, resuming monetary easing cycles that had been on hold amidst uncertainty in the broader economic and trade policy backdrop. We discuss the decisions, the market reaction, and the potential economic implications in more detail below.

Rate Cuts

The Federal Reserve (Fed) lowered its benchmark rate by 0.25% at its meeting in September, a move widely expected by markets and the first cut since December 2024. A series of softer-than-expected labour market data over the summer heightened concerns over a potential growth slowdown, while recent inflation readings showed less tariff pass-through than previously anticipated, giving the Fed room to act to cushion against downside risks in the economy.

The Bank of Canada (BoC) matched the Fed’s decision, reducing rates by a quarter-point last month. A high degree of USMCA compliance in trade flows and the removal of retaliatory tariffs on the U.S. has helped keep inflation in check, opening the window for the BoC to cut rates to support some trade-impacted sectors and a labour market facing rising unemployment. However, the BoC offered little guidance on the future path for monetary easing, with officials stressing that they would be “proceeding carefully” in an uncertain policy and economic environment.

Economic implications

Broadly speaking, rate sensitive areas of the economy should be poised to benefit from easier financial conditions, with housing likely a primary beneficiary. In Canada, housing market activity has picked up recently with existing home sales reaching a 2025 high in September amid relatively lower prices and improved inventory dynamics. However, the sector continues to face some challenges, including affordability constraints, slowing population growth and broader economic uncertainty. Lower financing costs could provide a timely boost to demand in the Canadian housing market. Similar dynamics apply south of the border, where lower mortgage rates could provide relief in a market constrained by affordability challenges and muted builder activity.

 Elsewhere, more cyclical segments of financial markets could also benefit from the tailwind of lower borrowing costs, including smaller-sized companies, more economically sensitive sectors and lower-quality corporate borrowers. Nevertheless, a risk worth monitoring is inflation, as an overly aggressive approach to rate cuts could lead to renewed concerns around inflationary pressures, a potential source of market volatility.

Takeaways

The evolving balance of risk between inflation and the labour market has led central banks to place a greater emphasis on keeping the labour market on steady footing. Along these lines, the resumption of rate cuts is aimed at countering downside risks, as slowing job creation has become more evident. While easier financial conditions should provide broad support for the economy, there remains significant uncertainty over how far and how fast interest rates will fall, as central banks are also committed to maintaining inflation stability that is aligned with their long-term targets. We will be watching the future path of monetary policy closely alongside government bond yields as central banks navigate the complex tradeoffs between the labour market, inflation, and the broader economy.

More recently, in the month of October, we have seen some volatility return to equity markets. This is mainly related to increased news flow around trade between the U.S. and China. This is a good reminder to take some time to reflect on any upcoming cash needs so that portfolios can be positioned to withstand any short-term volatility that may arise.

Should you have any questions, please feel free to reach out.