Tax Tips for 2025 Year-end

With the close of 2025 approaching, it is time to proactively assess your current financial standing and implement key strategies to minimize your tax burden and set a strong financial foundation for the coming year. The tax tips below offer tax-saving advice, compliance insights, and financial optimization opportunities tailored for individuals, business owners, and employers.

For Individuals: Maximize Savings and Reduce Taxes

1. Optimize Investment Gains and Losses

• Losses carryforward: If you have capital losses carryforward from prior years, you may consider selling some of the winners in your non-registered accounts to utilize these loss carryforwards in 2025.  
• Tax-Loss Selling: If you have investments with accrued losses, you may consider realizing these accrued losses to offset against your capital gains, such as selling underperforming investments. Be cautious with the “superficial loss” rule, which can disallow losses if you (or an “affiliated person” like your spouse or a corporation you control) repurchase the same or similar securities within 30 days of selling. Moreover, be cautious with selling foreign investments as currency fluctuations may result in unexpected gains or losses. Execute all “tax-loss selling” trades by December 30, 2025. This is the last trading day to ensure the transaction settles in 2025.

2. Maximize Tax-Sheltered Accounts

• RRSP Contributions: Contributions for 2025 can be made until March 2, 2026. Contributions are deductible up to 18% of your prior year’s earned income (to a max of $32,490), plus any unused contribution room from previous years. If you are unsure of your RRSP contribution room, you can check it on your CRA My Account or on your latest Notice of Assessment.
• Spousal RRSP Contributions: The higher-income spouse can consider making a contribution to a spousal RRSP for future income splitting with a lower-income spouse such that the higher-income spouse can get a deduction when contributing, and the future withdrawals may be taxed in the hands of the lower-income spouse.
• Convert RRSP to RRIF: If you turn 71 this year, ensure final contributions are made and your RRSP is converted to a RRIF by December 31, 2025.
• Overcontribution to RRSP: If you had employment income or business income in the year you turn 71, consider overcontributing to your RRSP in December 2025 by the amount of earned income that will be created on January 1, 2026.  The overcontribution will be absorbed by your new RRSP contribution room, and the tax savings from deducting this contribution will more than offset the nominal overcontribution penalty tax.
• Convert a portion of RRSP to a RRIF at age 65: If you don’t have any pension income and are at least 65 years old (and younger than 71 years old), you may consider transferring $14,000 from your RRSP to your RRIF at the age of 65, and then consider withdrawing $2,000 a year from your RRIF from age 65 to 71 (a total of 7 years) to benefit from the pension income credit, which would allow you to receive $2,000 of RRIF income annually tax-free.
• TFSA Contributions: The 2025 contribution limit is $7,000. If you’ve never contributed, your total contribution room could be as high as $102,000, allowing significant tax-free growth. You should plan withdrawals carefully to avoid overcontribution penalties.

3. Tax Benefits for Homeowners

• First Home Savings Account (FHSA): The annual contribution limit for the FHSA remains $8,000 for 2025. Contributions are tax-deductible, and withdrawals for home purchasing are tax-free. The lifetime contribution limit is $40,000. Unused contribution room can be carried forward, up to a maximum of $8,000.
• Home Buyers’ Plan (HBP): Withdraw up to $60,000 from your RRSP tax-free to purchase your first home. You must start repaying the withdrawal within five years under a temporary extension. If possible, delay withdraws until early 2026 to extend the purchase and repayment timeline by an additional year.
• Home Accessibility Tax Credit (HATC): Seniors and individuals with disabilities can claim 15% of eligible renovation expenses up to $20,000 to make their homes safer and more accessible. Eligible expenses paid by December 31, 2025 could yield up to $3,000 in tax credits.
• Multigenerational Home Renovation Tax Credit (MHRTC): This refundable credit supports creating secondary units for qualifying relatives. You can claim 15% of renovation costs, up to $50,000 for a maximum credit of $7,500. Expenses must be incurred, and renovations must be completed in 2025 to qualify for this refundable credit. Claiming the MHRTC may affect your ability to claim the principal residence exemption when you eventually sell your property. Consider speaking to your Welch advisor before you undertake the renovation.
• First-Time Home Buyer’s Tax Credit: If you purchased your first home in 2025, you may claim this non-refundable tax credit worth up to $1,500. You need to ensure that this home qualifies as your principal residence, and file this claim as part of your 2025 personal tax return. If the home is acquired by you for the benefit of a “specified person” with disabilities, you may also claim this non-refundable tax credit. Please consult with your Welch advisor for more information if you think that you may be eligible to receive the tax credit.
• Proposed First-Time Home Buyers’ (FTHB) GST/HST Rebate: On May 27, 2025, the Federal government proposed eliminating the GST (or federal portion of the HST) on new or substantially renovated homes for first-time home buyers. The rebate offers up to a maximum of $50,000 for homes valued up to $1 million, with a reduced benefit for homes valued between $1 million and $1.5 million. Since the proposed legislation has not received Royal Assent, it would be important to monitor the legislative status, and apply for the rebate accordingly.

4. Education and Disability Savings

• RESP Contributions and withdrawals: Secure up to $500 annually in Canada Education Savings Grants (CESG) with a $2,500 contribution for each child under 18 by December 31.Consider having Educational Assistance Payments (EAPs) made through the RESPs before December 31, 2025 for your child/grandchild who is a beneficiary of the plan if they attend a post-secondary institution in 2025. The maximum EAPs allowed for a 13-week education is $8,000 for a full-time student and $4,000 for a part-time student.
• RDSP Contributions: Contribute to a Registered Disability Savings Plan (RDSP) to maximize federal grants and bonds. Eligible individuals should act before December 31, 2025 to benefit from this year’s contributions.

5. Charitable Donations

• Donating to a registered charity is a great way to reduce your taxes. Donations of cash or gifts “in-kind” of publicly traded securities are eligible for tax credits of up to 55%, depending on your province or territory of residence, once total annual donation amounts exceed $200 in a calendar year. The last day to make a donation for 2025 is December 31^st, and be sure to ask for an official charitable receipt.
• The capital gains from gifting publicly traded securities such as stocks or mutual funds with accrued gains are not subject to tax, while you still receive a tax receipt for the full fair market value of the securities you donated.
• If your income is over $177,882 and you are planning to make significant charitable donations, be aware that recent changes to the Alternative Minimum Tax (AMT) rules may impact your tax benefits. Under the new rules, only 80% of the donation tax credit is allowed for AMT calculations, compared to the full 100% previously permitted. Additionally, for in-kind donations of publicly traded securities, 30% of the capital gains on these securities will now be included in AMT calculations whereas previously no portion of these gains was included. Please consult with your Welch advisor for more information on AMT changes that may have an impact on your taxes.

6. Alternative Minimum Tax (AMT)

• Significant changes to the AMT system were introduced in 2024, including an increased AMT rate, a higher AMT exemption, and an expanded AMT base that limits specific deductions, exemptions and credits. AMT liability remains a hot topic for 2025, particularly for individuals with taxable income exceeding $177,882 who benefit from lower-taxed income sources or significant deductions, such as:
  • capital gains,
  • stock options,
  • Canadian dividends,
  • unused non-capital losses, net capital losses, or limited partnership losses carried forward from previous years,
  • non-refundable tax credits, such as the donation tax credit,
  • various deductions, such as moving, child care, employment and interest/financing costs, and
  • investment counsel fees.

Please consult with your Welch advisor for more information if you think that you may be impacted by any of these AMT changes.

For Business Owners and Employers: Optimize Corporate Tax Strategies

1. Owner-Manager Compensation Strategies

• For tax efficiency, many owners choose a combination of salary and dividends. Paying yourself a salary allows you to contribute to Canada Pension Plan and RRSPs, while dividends are generally taxed at a lower rate. However, given the changes to AMT and other recent tax reforms, review your personal and business tax situation with your Welch advisor to determine your optimal strategy.

2. Contributions to Employee Benefits and Retirement Plans

• Business owners can make contributions to employee retirement plans and group benefit programs, and these contributions are tax-deductible. The year-end is a good time to review your company’s employee benefit plans, especially if you haven’t fully utilized your tax deductions. If you offer a Group RRSP or other retirement savings plans to employees, consider making contributions before December 31^st to help reduce your business’s taxable income for the year.

3. Plan Around the Small Business Deduction (SBD) grind

• If your corporation earns more than $50,000 of passive investment income in a taxation year, the SBD limit could be reduced for the following taxation year. You may consider deferring passive income by realizing capital gain in 2026. Alternatively, an Individual Pension Plan or corporately owned exempt life insurance might be appropriate, since income earned in these plans does not impact access to the SBD. Speak to your Welch advisor to discuss whether these strategies may be appropriate in your situation.

4. Capital Expenditures

Budget 2025 introduced the “Productivity Super-Deduction”, a set of enhanced Capital Cost Allowance (CCA) measures designed to accelerate investment and enhance Canada’s business competitiveness. Businesses should strategically plan capital expenditures to utilize these incentives:

• Immediate Expensing for Manufacturing & Processing (M&P) Buildings (NEW):
  • A temporary measure provides 100% immediate expensing for eligible M&P buildings (Class 1) and qualifying additions/alternations.
  • Eligibility: Property must be acquired on or after Budget Day (November 4, 2025) and first used for M&P before 2030, provided at least 90% of the building’s floor space is used for M&P purposes.
  • Note: This 100% expensing is subject to a phase-out, dropping to 75% for property first used in 2030-2031 and 55% for 2032-2033.
• Immediate Expensing for Productivity-Enhancing Assets (CONFIRMED/EXTENDED):
  • The Super-Deduction confirms and/or extends the 100% first-year write-off for specific high-value, productivity-enhancing assets, acquired from April 16, 2024, and available for use before January 1, 2027, including:
    • M&P machinery and equipment
    • Clean energy generation equipment and Zero-Emission Vehicles
    • Specific technology assets (e.g., patents, data network infrastructure, and computer hardware/software, generally falling under Class 44, Class 46, and Class 50)

• Accelerated Investment Incentive (AII) Reinstatement:
  • Budget 2025 reinstates the general AII, which provides an enhanced first-year deduction for a wide range of capital assets.
• Existing Immediate Expensing for CCPCs (EXPIRING):
  • Ensure any capital investment is made to utilize the existing general immediate expensing provision for eligible property (up to a maximum of $1.5 million annually) for CCPCs with up to $50 million in taxable capital. This incentive remains available until December 31, 2025.

5. Managing Capital Dividend Account (CDA) and Tax-Loss Selling

• Before engaging in triggering capital losses in your investment portfolio, review your corporation’s Capital Dividend Account (CDA) to determine if there is an existing positive balance. The CDA is a notional account that tracks the non-taxable portion of net capital gains and certain other amounts. This balance allows corporations to pay tax-free capital dividends to shareholders, provided the dividends do not exceed the CDA balance. It is important to note that realizing the net capital losses will reduce the CDA balance and may eliminate the ability to pay capital dividends, so you should consider paying capital dividends to the extent possible before triggering capital losses. Consult with your Welch advisor to review your corporation’s CDA balance.

7. Loss Utilization within a Group

• If you operate multiple corporations within a group, you may have one or more profitable entities and others experiencing losses. The CRA generally allows loss utilization within a related corporate group through specific strategies. There may be strategies to allow a corporate group in this situation to achieve better overall tax and financial results. Given the complexity of corporate reorganizations and the potential for unexpected tax implications, please consult with a tax specialist before pursuing any loss utilization strategies.

Final Takeaway Don’t wait – proactive year-end tax planning is essential for maximizing your financial position. By taking the time now to review available deductions, credits, and strategies, you may set yourself up for significant savings. Contact your Welch LLP advisor to discuss if any of these strategies are applicable to your unique situation. A little preparation today translates into a stronger financial close to the year and a smoother tax season ahead.