3 year-end tax planning strategies for investors

Many Canadians are reviewing year-end tax planning strategies to determine which ones might best apply to their situations. While there are several strategies that can be considered, these three investment-related concepts can enhance your clients’ tax positions for 2025 and beyond.

Tax-loss selling

Year-end is an ideal time to review investment portfolios to determine where it might make sense to trigger capital gains to offset current or prior-year capital losses, or trigger capital losses to offset current or prior-year capital gains.

Where capital losses exceed capital gains in a given year, net capital losses can be carried back for use in any of the three prior years or carried forward for use in any future year.

Thinking back to 2022, the opportunity to use 2025 net capital losses against realized capital gains from 2022 is about to roll off the calendar. Net capital losses realized before year-end can be applied to any of 2022, 2023 or 2024, creating a tax refund for those years.

Investors can check their Notices of Assessment for those years to see what their capital gain or capital loss positions were for those years.

To claim a capital loss for 2025, the loss must settle before year-end. With a T+1 settlement date for securities, Dec. 30, 2025 would be the last day to trigger a capital gain or loss for the transaction to settle by year-end. Where this deadline is not met, the transaction will not be claimable for 2025, potentially exposing current year capital gains to taxation.

As always, when triggering capital losses, investors should be mindful of the superficial loss rule which can work to frustrate capital loss planning if not careful. To prevent transactions done solely for tax purposes where there is no real intention to dispose of an asset — where an investor disposes of capital property at a loss and the investor repurchases identical property within 30 days before or 30 days after the sale — the capital loss will be denied and deferred until the repurchased property is eventually sold. This applies to an investor or affiliated person, which includes a spouse, common-law partner, certain controlled corporations and certain trusts.

Similarly, attempting to trigger a loss by transferring depreciated assets in-kind to RRSPs and TFSAs of the seller will deny the capital loss, in part because RRSPs and TFSAs are considered affiliated persons for these purposes.

To avoid this challenge, Canadians can consider selling depreciated securities and, assuming available contribution room, contributing cash to their RRSP or TFSA. They can then wait 31 days to clear the superficial loss period before reacquiring the original investment.

TFSA withdrawals before year-end

When the TFSA was launched in 2009 as part of the 2008 federal budget, it was promoted as a “flexible registered account designed to help Canadians with their different savings needs over their lifetime.”

Features such as tax-free investment income, the ability to gift to a spouse or common-law partner to maximize contribution room between a couple and the ability to recontribute amounts withdrawn as early as the following year without requiring “new” contribution room are all attractive features of the account.

When it comes to year-end tax planning, if a TFSA holder is considering a withdrawal from their account, they should consider making the withdrawal before the end of 2025. Doing so will allow for recontributions as early as Jan. 1, 2026, as opposed to having to wait until January 2027 if the withdrawal were to occur in 2026.

Here’s an example. Rhonda, a regular contributor to her TFSA, has no current-year contribution room and no room carried forward from prior years. Needing to fund a home renovation, Rhonda is considering a $10,000 withdrawal from her TFSA. Here is the impact of a December 2025 withdrawal versus a withdrawal in January 2026.

* Assumes a TFSA dollar limit for 2027 of $7,000 and no carry-forward room from prior years.

Age 71? Consider one final RRSP contribution

Canadians who turned 71 this year should be reminded that Dec. 31, 2025 is the last time they can contribute to an RRSP, unless they have a younger spouse or common-law partner.

Because RRSPs must be converted to RRIFs by the end of the year the RRSP annuitant turns 71, the opportunity to contribute to an RRSP beyond this point is lost, even if the RRSP holder has unused contribution room.

An exception applies if the RRSP holder has a younger spouse or common-law partner. In that case the older spouse can contribute to a spousal RRSP for the younger spouse to make use of the contributor’s unused contribution room. This can occur until the end of the year the younger spouse reaches 71, at which point the spousal RRSP must be converted to a spousal RRIF.

For example, Conrad, a widowed senior, turned 71 in 2025. For 2025, his unused RRSP contribution room is $10,500 from part-time employment and rental income earned in 2024. Because Conrad must convert his RRSP to an RRIF before the end of the year, his final opportunity to contribute to an RRSP would be Dec. 31, 2025, even though he worked and earned rental income in 2025 that will create RRSP contribution room for 2026. Should Conrad miss this opportunity to contribute, his unused room will be lost, unless he enters a married or common-law relationship with a spouse who is 71 or younger, allowing for contributions to a spousal RRSP.

Single Canadians with maximized RRSP contributions who turned 71 in 2025 can consider a one-time RRSP overcontribution in December before converting their RRSP to a RRIF. This can make sense if the RRSP annuitant had earned income (e.g., employment, self-employment or rental income) in 2025 that will create RRSP contribution room for 2026.

While an RRSP overcontribution penalty tax of 1% would normally apply for the month of December, new RRSP contribution room would be available effective Jan. 1, 2026. Depending on the amount of the overcontribution, the new room would absorb the excess and cease the tax penalty going forward. The contributed amount could then be deducted for 2026 or any future year, providing tax savings for the year and tax-deferred growth going forward.

Year-end is a busy time for many. Amid planning for the holiday season, investors should be reminded of appropriate tax planning strategies to consider before year-end to improve their taxable position — this year and in the years ahead.

Wilmot George

Tax & Estate

Wilmot George, CFP, TEP, CLU, CHS, is managing director, tax and estate planning at Canada Life, Wealth Distribution. Wilmot can be contacted at wilmot.george@canadalife.com.