Why Year-End Planning Matters

The weeks leading up to December 31 offer crucial opportunities to reduce your tax burden. Strategic year-end planning allows you to take advantage of deductions, credits, and timing strategies that can significantly impact your tax bill.

For Individuals

1. Maximize RRSP Contributions

While the official RRSP deadline is March 1 of the following year, contributing before year-end offers several advantages:

• Immediate tax deduction for the current year
• Earlier investment growth through compound returns
• Lower taxable income for the year
• Potential to qualify for income-tested benefits

2. Donate to Registered Charities

Charitable donations made by December 31 qualify for tax credits on your current year's return:

• 15% federal credit on first $200
• 29% federal credit on amounts over $200
• Additional provincial credits
• Combine donations with your spouse for maximum benefit

3. Harvest Tax Losses

If you have investments with unrealized losses, selling them before year-end can offset capital gains:

• Capital losses can offset capital gains in the same year
• Unused losses carry back 3 years or forward indefinitely
• Beware of the superficial loss rule (30-day repurchase restriction)

4. Income Splitting with Family

Consider legitimate income-splitting strategies:

• Loan money to a lower-income spouse at prescribed rate
• Contribute to a spousal RRSP
• Split CPP benefits with your spouse
• Pay reasonable salaries to family members working in your business

For Business Owners

1. Accelerate Expenses

Paying for expenses before year-end can increase deductions for the current year:

• Purchase equipment and supplies
• Prepay rent, insurance, or professional fees
• Pay bonuses to employees before December 31
• Complete necessary repairs and maintenance

2. Defer Income

If you're in a higher tax bracket this year, consider:

• Delaying invoicing until January
• Postponing bonuses or salary increases to the new year
• Deferring capital gains realization

3. Capital Asset Purchases

Take advantage of accelerated capital cost allowance (CCA) and immediate expensing:

• Accelerated investment incentive (up to 100% immediate expensing for eligible assets)
• Purchase vehicles, equipment, or technology before year-end
• Consider the half-year rule and timing of purchases

4. Write Off Bad Debts

If clients haven't paid and you've exhausted collection efforts, write off uncollectible accounts before year-end to claim the deduction.

5. Review Inventory

Conduct a year-end inventory count and write down obsolete or damaged goods to reduce taxable income.

Corporate Strategies

1. Salary vs. Dividend Optimization

Determine the optimal mix of salary and dividends for tax efficiency:

• Salary creates RRSP room and CPP credits
• Dividends are tax-efficient but don't create RRSP contribution room
• Consider personal and corporate tax rates
• Factor in provincial tax integration

2. Bonus Accrual

Declare bonuses before year-end, even if paid within 180 days of year-end, to claim the deduction in the current year.

3. Small Business Deduction Planning

Ensure your corporation qualifies for the small business deduction (lower tax rate on first $500,000 of active business income):

• Monitor passive investment income limits
• Consider associated corporation rules
• Review CCPC status

Investment Strategies

1. TFSA Contributions

While TFSA contributions don't provide tax deductions, maximizing contributions allows for tax-free growth:

• 2024 contribution limit: $7,000
• Unused room carries forward indefinitely
• Tax-free withdrawals anytime

2. Capital Gains Exemption

If selling qualified small business corporation shares or farm/fishing property, claim the lifetime capital gains exemption (over $1 million).

Family Strategies

1. RESP Contributions

Contribute to your child's RESP before year-end to receive government grants:

• 20% Canada Education Savings Grant on first $2,500 annually
• Maximum $500 grant per year per child
• Additional grants for lower-income families

2. Pension Income Splitting

If you're 65 or older, split eligible pension income with your spouse to reduce overall family tax.

Final Checklist

• Review RRSP contribution room and make maximum contributions
• Make charitable donations before December 31
• Harvest capital losses to offset gains
• Purchase necessary business equipment
• Pay or accrue employee bonuses
• Review and optimize salary vs. dividend mix
• Contribute to RESP for children
• Write off bad debts and obsolete inventory
• Plan January payments to defer income

Get Professional Advice

Year-end tax planning can be complex, and the strategies that work best depend on your unique situation. Working with a professional accountant ensures you maximize savings while staying compliant.