Tax planning quick facts and common strategies

You don’t need to know every detail of an optimized tax strategy—that’s what we’re here for. But having a general understanding of some common tax planning tools can make conversations with your advisor more productive and empowering for you and your family.

In this article, we revisit the basics of RRSPs, TFSAs, FHSAs, tax deductions, and tax credits, noting any relevant changes for the 2024 tax year. When combined, these strategies can work together to create a tailor-made plan that helps you realize your goals.

As a trusted partner, your advisor can guide you through the complexities of tax planning so you can feel confident and prepared. By understanding the key benefits of these tools, you’ll be better equipped to make informed decisions and get the most out of your tax strategy. Let’s dive in!

RRSP quick facts

The 2024 tax year RRSP contribution deadline is March 3, 2025.

If you’re 70 or younger as of January 1, 2025, and have enough contribution room, you can still contribute to your RRSP. Your contribution room is calculated based on your earned income, like employment income reported on a T4 slip. Keep in mind that your RRSP must be converted into a RRIF by the end of the year you turn 71. However, if you have a younger spouse, you might still be able to contribute to a Spousal RRSP in their name, even after you’ve reached 71.

For the 2024 tax year, unless you’re part of a pension plan, your new RRSP contribution room is based on 18% of your 2023 earned income, up to a maximum of $31,560. You might also have unused contribution room carried forward from previous years.

Before making a contribution, it’s always a good idea to confirm your current contribution room. You can do this by checking your most recent Notice of Assessment (NOA) or Notice of Reassessment (NOR) from the CRA, or by logging into your My Account on the CRA website. Any unused contribution room after March 3 will carry forward, giving you flexibility for future contributions.

RRSP common strategies

When it comes to your RRSP, it is possible to contribute and not claim your tax deduction. You can also potentially deduct only part of your contribution for the current tax year. This can be a smart move if you expect your income to rise significantly in the coming years, allowing you to maximize the value of your contribution when it matters most.

Another approach is to contribute and only deduct enough to bring your taxable income down to a specific level. Depending on your goals and financial situation, this flexibility can help you make the most of your RRSP. For example, you could use your RRSP to:

• Completely eliminate your tax owing for the year.
• Lower your taxable income to just below your current tax bracket. This way, you get the most value from each dollar contributed while preserving unused contribution room for future years when your income might be higher.
• Reduce your income to avoid triggering a clawback on your Old Age Security (OAS). For the 2024 tax year, the clawback starts if your net income exceeds $90,997, and for 2025, that threshold increases to $93,454.

TFSA quick facts

There’s no deadline for making TFSA contributions since they aren’t deducted from your income. If you don’t contribute this year, you can always catch up in the future.

TFSAs are a great option for almost every Canadian aged 18 and older. If you were 18 or older in 2009 (the year TFSAs were introduced) and haven’t contributed yet, your cumulative contribution limit is now $102,000, which includes $7,000 of new room for 2025.

If you already have a TFSA, your contribution limit is $102,000 minus your total lifetime contributions and withdrawals. Keep in mind that any withdrawals you make this year won’t increase your contribution room until January 1 of the following year.

TFSA strategies

With the right asset mix, your TFSA can be a great place to maximize growth since all gains are tax-free. However, it’s worth keeping in mind that any losses can’t be used to offset capital gains in your taxable accounts. For more conservative investors who prefer to avoid equities, a TFSA can be a good place to hold interest-bearing investments rather than focusing on growth.

If you invest in foreign dividend-paying companies within a TFSA, the foreign government will withhold a portion of the dividend as a tax. Unlike in a non-registered account, you can’t claim a foreign tax credit on these withholdings when they occur in a TFSA. Because of this, some investors choose to focus on capital appreciation over dividend yield when selecting foreign investments for their TFSA.

If you’re unsure whether to prioritize contributions to your RRSP or TFSA, it might be a good idea to start with a TFSA. That way, you avoid decision paralysis and still make the most of your opportunities. Plus, it’s easier to transfer funds from a TFSA to an RRSP later on if needed. Moving funds in the other direction—RRSP to TFSA—is trickier due to the tax implications of RRSP withdrawals.

FHSA quick facts

In 2023, a new tax-advantaged savings account was introduced for Canadian residents saving for their first home: the First Home Savings Account (FHSA).

You can contribute up to $8,000 each year, and if you opened an FHSA in a previous year and didn’t contribute the full amount, you might have some carryforward contribution room. Keep in mind that the maximum you can contribute in any single year is $16,000. This amounts to $8,000 for the current year, plus any missed contributions ($8,000) from a prior year. There’s also a lifetime contribution limit of $40,000.

Your contributions are tax-deductible, similar to an RRSP, and when you use the funds to buy your first home within 15 years, both your contributions and any growth will be withdrawn tax-free, just like a TFSA. For more details on how this new account works, check out our two-part FHSA series:

• Part 1: Alternative ways to fund and use an FHSA
• Part 2: Planning ahead with the FHSA to optimize tax benefits

Much like RRSP contributions, the tax deduction on FHSA contributions can be carried forward and used in a future tax year. However, the annual contribution period for an FHSA runs from January 1 to December 31, which is different from RRSPs, where you have until 60 days into the following year to make contributions for the previous tax year.

FHSA strategies

If you're planning to buy a home within the next 15 years, it's a good idea to open an FHSA and start contributing. It will take five years of full contributions to reach the lifetime limit of $40,000, so getting an early start can really pay off! If you don’t have cash to contribute, you can transfer money from your TFSA into your FHSA. Your TFSA contribution room will reset on January 1 of the following year.

You can also transfer funds from your RRSP into your FHSA, but keep in mind that your RRSP contribution room won’t be replenished like it would with a TFSA, and you won’t receive another tax deduction. However, this can still be a great way to ensure the funds are available for a tax-free withdrawal when you buy your home.

Summary of limits for 2024/2025

	Tax Year
	2024	2025
RRSP max new contribution room	$31,560	$32,490
TFSA new contribution room	$7,000	$7,000
OAS clawback threshold	$90,997	$93,454
FHSA contribution room1	$8,000	$8,000

¹ Need to have FHSA account opened to accrue contribution room.

Getting ready to file your tax return—deductions and credits

Tax credits are often confused with tax deductions. While both have benefits, they work in different ways. A deduction lowers the amount of income that gets taxed, while a credit directly reduces the tax you owe after the calculation.

Tax deductions

Tax deductions are subtracted from your total gross earnings to reduce your overall taxable income. For example, if you earn $100,000 and have $10,000 in deductions, you’ll only pay tax on $90,000. The higher your tax bracket, the greater the benefit of these deductions.

The list below isn’t exhaustive, but it highlights some of the most common deductions that may apply to you:

• RRSP contribution deduction
• Carrying charges (investment management fees) for non-registered investment accounts
• Deduction for splitting pension income with a spouse. The amount split would be deducted from the pensioner’s income and added to the spouse’s income
• Interest paid to your spouse on family income splitting loans
• Interest paid on money borrowed to invest inside non-registered investment accounts

Tax Credits

Tax credits differ from deductions in that they’re subtracted from the total amount of tax owing instead of from your gross income. For example, if you owe $1,000 in taxes and have a $100 credit, your tax bill would drop to $900. The great thing about tax credits is that they offer the same value regardless of your tax bracket.

Here are some of the more common credits that might apply to your situation:

• Basic personal tax credit. This is an amount available to everyone that ensures a minimum level of income can be received without taxation.
• Spouse or common-law partner tax credit. If one spouse doesn’t have enough income to utilize all of their basic personal tax credit amounts, the unused portion can be transferred to their spouse.
• Donation tax credit. Donations earn a higher tax credit when they exceed $200, so putting all donations on one spouse’s tax return will require you to break through the $200 threshold only one time. If you have taxable income that’s exposed to the top federal tax bracket, then you get an additional 4% return on your donations. Note that each province has different donation credit rules, and some provinces are more generous than others. For example, Alberta recently introduced a super-credit on the first $200, which means in Alberta the typical advice to allocate all donations onto one spouse’s tax return no longer holds true. It’s recommended that you make any significant charitable donations by donating shares with a large unrealized capital gain rather than giving cash.
• Political donation tax credits. These are similar to charitable donations but are reported separately.
• Pension income tax credit on up to $2,000 of eligible pension income. If you have a spouse but only one of you has eligible pension income, then this credit can be used twice provided that you split at least $2,000 of eligible pension income splitting on your tax return. A common misunderstanding is that this allows for $2,000 of pension income to be received tax-free, but that’s only the case if your income is within the lowest tax bracket. If your income is exposed to higher tax rates, this credit will still reduce your tax payable on the $2,000 of pension income but there will be some tax to pay.
• Medical expense tax credit. This tax credit is generally best reported on the tax return of the lower income spouse as there’s a threshold that needs to be passed, which is based on net income. A caveat to this is that you would not report the medical expenses on someone’s tax return if they don’t have any tax to pay. Medical expenses can be claimed for any 12-month period, provided the period ends within the current tax year. Medical expenses do not need to be claimed for the January 1 to December 31 calendar period if there is a more optimal 12-month period that you can apply.
• The disability tax credit. This is a valuable tax credit that also opens the door to various government assistance programs, as well as the Registered Disability Savings Plan (RDSP). You must first apply for the disability tax credit and be approved before you can claim the credit on your tax return. If it’s deemed that you would have been eligible for the credit in prior years, then your prior year tax credits can, and should, be adjusted retroactively.
• Digital news subscription expenses. These must be qualified by the CRA to be claimed as a tax credit.
• Multigenerational home renovation tax credit. This tax credit allows you to claim renovation expenses (up to $50,000) to create a self-contained secondary unit to allow a senior or an adult eligible for the disability tax credit to live with a qualifying relative. Note that depending on the nature of the renovations, it is possible to impact your ability to claim the Principal Residence Exemption on the entire property when sold in the future. So, tread carefully.

These strategies are a great starting point for thinking about your own situation, but many of the finer details of tax optimization really come to light when you have a full financial plan in place. Your Private Wealth Advisor can help you spot tax-saving opportunities that you might have missed.

If these tax considerations have raised questions for you about your own financial situation, we’d be happy to help guide you.

Sources: Canada Revenue Agency, Chartered Professional Accountants Canada, Government of Canada

Information presented herein is for discussion and illustrative purposes only and is not a recommendation or an offer or solicitation to buy or sell any securities. Views expressed are as of the date indicated, based on the information available at that time, and may change based on market and other conditions. Unless otherwise noted, the opinions provided are those of the authors and not necessarily those of CWB Wealth or its affiliates. Investment decisions should be based on an individual's own goals, time horizon, and tolerance for risk. Nothing in this content should be considered to be legal or tax advice and you are encouraged to consult your own lawyer, accountant or other advisor before making any financial decision. Quoted yields should not be construed as an amount an investor would receive from the Fund and are subject to change. Investors should consult their financial advisor before making a decision as to whether mutual funds are a suitable investment for them. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments.

Please read the prospectus, which contains detailed investment information, before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. CWB Wealth uses third parties to provide certain data used to produce this report. We believe the data to be accurate, however, cannot guarantee its accuracy. Visit cwbwealth.com/disclosures for our full disclaimer.