Tax rules for non-registered accounts are more complex then for registered accounts. There are also other tax strategies that may help you optimize your tax savings.

Some of these strategies are complex. Investors should discuss them with an advisor or a qualified tax specialist before putting them into action.

1. Non-registered accounts strategies

Consider postponing the purchase of a mutual fund.

Be aware that most mutual funds tend to make taxable distributions to their unitholders in the last couple of months of the year. This distribution includes accumulated underlying realized income since the last distribution was made, which may have been last year at this time. If you purchase a fund near the end of the year, the value of the fund, so the amount you paid, likely reflects this accumulated income, and then you'll be taxed on that income when the distributions are made in the year, regardless of the timing of your purchase.

Consider deferring realization of capital gains to 2025.

If you’re planning on selling securities that have appreciated in value, consider waiting until January 2025. If you do, the tax bill associated with the gain will not be due until April 30, 2026. If you sell in December 2024, the tax bill will be due April 30, 2025.  Waiting a month can, thus, defer the taxes for an entire year. This strategy is even more effective if your tax rate will be lower in that future year.

There could eventually be an increase in the capital gains inclusion rate, which would make deferral less attractive. Usually, these changes are announced in the Federal Budget, and are not typically retroactive. Your advisor can help you understand if this strategy can work for you.

Consider Tax Loss Harvesting.

Tax-loss harvesting is a strategy used to realize a tax benefit from on an underperforming investment. It’s especially effective if you have realized capital gains in the current or any of the previous three tax years.

To benefit, investments in a loss position need to be sold in order to realize a capital loss this year. The sale transaction must settled by December 31. The capital loss realized will offset capital gains realized during the year. If no capital gains have been realized in 2024 or the capital losses exceed the capital gains realized in that year, the net capital loss can be carried back up to three prior taxation years to offset capital gains in those years and recover tax previously paid.

For this strategy to be successful, you must avoid triggering the “superficial loss” rules. For more details, please read this article. Talk to your advisor or tax specialist before engaging in any tax-loss harvesting.

Consider transferring investments held at a loss to a child.

By transferring an investment that has dropped in value to a minor child before the end of 2024, you’ll trigger a capital loss on the disposition. This loss can offset any capital gains you realized that year or can potentially be carried back to any of the previous three years to offset capital gains in those years.

An additional benefit is that any future capital gains realized by the minor child on the gifted investment will be taxable to the minor child. Other investment income realized by the child, however, will still be taxable to you, such as interest and dividends due to the attribution rules.

Consider donating securities in-kind to a charity.

Donations made to a registered charity provide a donation tax credit (see this topic below). If you are planning to donate this year, consider donating publicly traded securities or mutual funds that have appreciated in value in-kind directly to the registered charity, instead of cash. You’ll receive a donation receipt equal to the market value of the investment at the time of the donation. As a bonus, any resulting capital gain associated with such a donation will be exempt from tax.

2. Other Tax strategies

Consider making charitable donations.

You have up to December 31, 2024, to contribute to a registered charity to receive a donation tax credit for 2024 tax year. Normally, federal tax credits are set at 15%, but donations are a positive exception. Eligible amounts donated above $200 qualify for a federal credit of 29% and those taxpayers in the top tax bracket get 33%. Provincial tax credits are also available, and their rates generally increase at the threshold of $200 as well.

This is a non-refundable tax credit that can be transferred between spouses/CLPs. If not used in the year of the donation, it can be used in the five following years.

Cash is by far the most popular way to give, but there are other ways to donate. You can transfer the ownership of a life-insurance policy to a charity, or you can donate a charitable gift annuity. As noted above, donating securities in-kind that have appreciated in value is a very tax-efficient way to give. Talk to your advisor to implement some of these donation strategies.

Consider lowering installment payments.

Some taxpayers are required to make tax instalments. These are usually due on the 15th day of the months of March, June, September, and December. Instalment payments are based on your previous year’s income. However, if your income for 2024 will be lower than previous years, consider reducing your final instalment payment on December 15. There is no need to pre-pay more taxes than you expect to owe.

Consult an accountant or tax specialist before making a lower installment payment. Interest and penalties will be payable if you end up owing taxes for the year.

Delay Home Buyer’s Plan (HBP) withdrawals until next year.

The HBP allows you to make a tax-free withdrawal from your RRSP to pay for a downpayment for a home, if you’re a first-time home buyer.  You can withdraw at any time of the year, however, some of the plan rules incentivize delaying the withdrawal until after year-end:

  • The participant must purchase a qualifying home by October 1 of the year following the withdrawal,
  • All withdrawals must be made in the same calendar year, and
  • Repayments must begin two years following the year of withdrawal.

Delaying a withdrawal until after year-end allows you more time to purchase a home. It also means there is more time to make withdrawals and delays the time before repayments must be made back into the RRSP.

Keep in mind that a new home savings vehicle was launched in 2023: the Tax-Free First Home Saving Account (FHSA). Since April 1, 2023, first time home buyers are able to contribute up to $8,000 per year to this plan, to a maximum lifetime limit of $40,000. You can contribute cash, securities in-kind, or even transfer in amounts from your RRSP or TFSA account to make the contribution. Unlike the HBP, there is nothing to pay back if you buy a qualifying home. 

An individual is allowed to use both the HBP and the FHSA on the same qualifying home purchase. 

Want to learn more about the FHSA? Read this article.

Create eligible pension income.

Subject to certain restrictions, you can allocate up to 50% of your eligible pension income to your spouse/CLP. In addition to potential tax savings from splitting your pension income, your spouse/CLP could also benefit from the pension income credit.

If you’re age 65 or older in 2024 and aren’t receiving any eligible pension income, you can create pension income a number of ways. You could withdraw from your RRIF account or purchase an insured annuity or insured Guaranteed Investment Certificate (GIC) with non-registered account funds.

As you can see, there are many strategies available to help minimize your 2024 taxes and boost your savings. If you’re planning to make contributions to or withdrawals from certain accounts, there are incentives to doing so in 2024, as opposed to waiting until 2025. Talk to your advisor to see if using any of the strategies discussed in this article make sense for you.

Information contained in this article is provided for information purposes only. Its not intended to provide or be a substitute for professional, financial, tax, insurance, investment, legal or accounting advice and should not be relied upon in that regard. It also does not constitute a specific offer to buy and/or sell securities. You should always consult your financial advisor or tax specialist before undertaking any of the strategies discussed in this article to ensure that all elements and your personal circumstances are taken into consideration in developing your individual financial plan. Information contained in this article has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to its timeliness or accuracy and SLGI Asset Management Inc. disclaims any responsibility for any loss that may arise as a result of the use of the strategies discussed.