Update: On June 13, the CRA said TFSA information is now available in My Account for most TFSA account holders.

TFSA information isn’t available in Canada Revenue Agency (CRA) portals, but financial advisors and their clients aren’t sweating the (TFSA) details.

Aravind Sithamparapillai, a certified financial planner with Ironwood Wealth Management Group Inc. in Hamilton, Ont., said clients haven’t been calling to ask about TFSA contribution room. “We haven’t had as many of those calls because of [the] touchpoint I do at the beginning of the year,” he said, which includes TFSA discussions.

“I haven’t had a single question from a client” about TFSA contribution room, said Aaron Hector, senior wealth advisor and founding partner with TIER Wealth in Calgary. He also discusses TFSAs with clients early in the year.

Hector’s firm provides tax services and so typically has CRA account access for clients, but that’s no advantage this year. The CRA began using a new data validation process for the electronic filing system used by institutions to upload tax information slips, and on April 3, the CRA said some issuers had trouble uploading the slips, which made for a challenging tax season. The trouble extends to TFSA annual information slips.

As explained on the CRA’s website, TFSA contribution room is the total of the TFSA dollar limit of the current year ($7,000 in 2025), any unused TFSA contribution room from previous years and any TFSA withdrawals made in the previous year.

The CRA’s self-service My Account portal is updated each Jan. 1 to reflect the new annual TFSA dollar limit, and is updated again with adjustments to TFSA contribution room once financial institutions’ annual TFSA information slips — due the last day of February — have been processed by the CRA.

In an email on Friday, CRA spokesperson Sylvie Branch wrote that issuers of information slips “had to get accustomed to the new system, adapt to new processes and, most importantly, contend with stricter validation of the data they submit to the CRA. These stricter validations and new processes caused delays in receiving and processing the information returns this year,” including TFSA annual information returns.

“Resolving our system issues is our priority, so that we can update TFSA information in My Account as soon as possible,” Branch wrote.

The CRA had no date for when the update would occur. “We regret the inconvenience and thank taxpayers for their patience,” the email said.

If a taxpayer doesn’t correctly calculate their TFSA contribution room, they could mistakenly overcontribute. Penalties for overcontributions are 1% per month on the excess amount, and many months could pass before a taxpayer becomes aware of an overcontribution.

“It is each taxpayer’s responsibility to maintain their own records and to compare them against their financial institution’s records as well as the information on My Account,” Branch’s email said. (The CRA has a worksheet to help calculate TFSA contribution room.)

With longstanding clients, calculating TFSA contribution room is “relatively easy” by consulting a multi-year transaction log, Hector said, assuming the client has no other TFSAs with other financial institutions.

Markus Muhs, senior portfolio manager with Muhs Wealth Partners and CG Wealth Management in Edmonton, said he’s received a few client inquiries this year about TFSA contribution room. “I bet there’s a lot of people with self-directed TFSAs [and] no adviser to stop them” from overcontributing, he said. “If they didn’t look a little bit deeper [to track their TFSA contribution room], they probably put themselves in a bad position.”

Even in a typical year, “the information on CRA’s website is never accurate in the first two or three months of the year,” given financial institutions have until the end of February to report the information, Hector said. Further, in past years, “we’ve had instances where we’ve had to go back to the financial institution” because it hadn’t provided information to the CRA.

“I’ve generally told [clients] you can’t trust that number,” Muhs said, referring to TFSA contribution room shown in My Account. “You have to keep track of it yourself.” He also tells clients to review TFSA transactions in My Account, not just the initial contribution limit shown, as a way to ascertain if the information is current (in a typical year when My Account has TFSA information).

In an email, Wilmot George, managing director of tax and estate planning with Canada Life in Toronto, said, “The CRA might not receive TFSA transaction records for the prior year until the end of February each year, which can result in inaccurate contribution limits from the CRA for the first couple months of the year.” Further, “reporting mistakes by financial institutions and the CRA might occur from time to time, so taxpayers should have some idea of how to calculate their contribution limits (or at least recognize errors) to avoid excess contributions and related penalties.”

While tracking TFSA contribution room is ultimately the responsibility of the taxpayer, “many are still learning about the TFSA and how it works, and most are not trained in calculating TFSA contribution room, especially when withdrawals have occurred,” George wrote.

Helping clients keep track of TFSA contribution room is table stakes for advisors and should be part of reviews with clients, Muhs said.

The clients who most need help tracking contribution room tend to be in a middle category, Sithamparapillai said — in between the high-net-worth clients who max out their TFSAs at the beginning of each year and the young families with expenses, who may be focused on RRSP savings. The client in the middle category may receive an inheritance, bonus, company shares or promotion, and want to make a one-time contribution or establish a more aggressive contribution schedule. “That’s the area where the really nuanced calculations or tracking comes into play,” Sithamparapillai said.

As he does with clients’ activity in other registered accounts such as RESPs, registered disability savings plans (RDSPs) and first home savings accounts (FHSAs), Sithamparapillai has started keeping a tally and personalized notes about clients’ TFSA contribution room, including contributions and withdrawals. (CRA portals don’t include information about contributions to RESPs and RDSPs, he noted.) That way, whenever clients have money to make a contribution — they receive a lump-sum payment, say — Sithamparapillai has the numbers at hand.

The process is efficient for client discussions, he said, and “clients find it valuable to have that information at a moment’s notice.”

Managing registered accounts

In preparation for client meetings at the beginning of the year — and discussions about registered accounts — Sithamparapillai collects clients’ year-end paystubs, which informs him of clients’ income and pension or group RRSP contributions (including employer contributions). Combined with other information such as previous notices of assessment, “I can get a pretty good proxy … of what their effective marginal tax rate is,” he said. Benefits, such as the Canada Child Benefit, are also considered.

Hector says he asks clients whether they plan to have children (or more children). “The piece … a lot of people miss in that [TFSA vs. RRSP] conversation is the family plan,” he said. “You might be in a middle tax bracket, but when you add on the Canada Child Benefit … you’re probably pushing up into a top marginal tax bracket or approaching it.”

Based on the client’s effective marginal tax rate, Sithamparapillai explains to clients (and, potentially, to their accountant or bookkeeper, he said) whether a TFSA or RRSP contribution makes more sense. Clients’ projected tax bracket at retirement is also considered.

Part of the discussion is about where contributions will come from, which, in the case of an RRSP contribution could be from a TFSA. “If you’re pulling from your TFSA room, then we have some additional contribution room [that becomes] available,” he said, referring to TFSA contribution room for the year after the withdrawal, not the current year.

If a client is on the fence about the RRSP vs. TFSA decision, “I would usually err to using the [TFSA], because it’s just so flexible,” Hector said. “It’s really easy to take money out of a TFSA a year or two down the road and move it into the RRSP. Going the other direction just does not work.”

While each client’s situation is different, Muhs said, generally, clients take advantage of both TFSAs and RRSPs as their incomes grow.

Sithamparapillai typically suggests clients don’t open multiple TFSAs with multiple financial institutions, which complicates tracking contribution room.

Muhs too advises clients against having more than one TFSA. “You can do multiple things with one TFSA,” he said, including having an emergency fund, short-term savings and longer-term investments for retirement. “Some people don’t realize that.” Also, an advisor should ask a client if they have TFSAs that the advisor doesn’t know about, he said.

Muhs also suggested some TFSA holders would benefit from an overcontribution cushion, as with RRSPs. Generally, taxpayers must pay a tax of 1% per month on contributions that exceed their RRSP deduction limit by more than $2,000. Implementing such a measure for TFSAs would make them more user-friendly, he said.

As things stand, he tells clients who make sporadic TFSA withdrawals and contributions to consider leaving themselves a little bit of TFSA contribution room as a precaution against overcontribution.

“You don’t have to max it out fully,” Muhs said. “Give yourself a cushion, because we’ve got lots of [TFSA] contribution space now.”

The total contribution room available for someone who has never contributed to a TFSA and has been eligible to do so since its introduction in 2009 is $102,000.

Here are the TFSA dollar limits by year:

2009 – 2012: $5,000

2024 – 2025: $7,000

2023: $6,500

2019 – 2022: $6,000

2016 – 2018: $5,500

2015: $10,000

2013 – 2014: $5,500

The disability tax credit (DTC) is underused due to complexities in the application process, tax filing difficulties and challenges with CRA processes and contact centres, according to the 2024 annual report issued by the tax agency’s disability advisory committee.

Although 96.6% of completed applications are approved, only one-quarter of people with disability who are likely eligible submitted a completed DTC application. And of those with a DTC certificate, only 64% claimed the credit in 2022, according to the report.

Among its 18 recommendations, the committee suggested the CRA improve awareness of the program and simplify the application process.

Many eligible Canadians don’t understand the benefits associated with a DTC certificate, such as opening a registered disability savings account or the upcoming Canada Disability Benefit, the report said.

The committee recommended targeted awareness campaigns to hard-to-reach people with disabilities, such as the homeless and Indigenous people, as well as medical practitioners who help fill in the application form.

Misconceptions about DTC eligibility among medical practitioners mean some practitioners may discourage eligible individuals from applying, the report said.

Partnerships with Indigenous communities and health authorities can increase awareness among potential applicants while collaboration with practitioner associations can improve DTC understanding among medical professionals.

The committee also found the complex application process to be a barrier to accessing the DTC. Only 24% of online DTC applications are completed, “highlighting that difficulties in finalizing applications remain a critical issue,” the report said.

The application for the DTC consists of two parts. Part A of the T2201 form is completed by applicant and Part B by a medical practitioner who provides eligibility information. Last year, the government estimated that 75% of DTC applicants used professional services such as lawyers and DTC promoters to complete the process.

In addition, provinces and the federal government may have different definitions of what constitutes a disability, which makes the system confusing and difficult to navigate. The committee advocated for a simplified and centralized application process and to work with the disability community to establish a common definition of disability.

Some of these issues lie outside of the CRA’s mandate, so addressing DTC issues will require collaboration with Finance Canada to amend the Income Tax Act and Employment and Social Development Canada to develop accessibility reforms, the report noted.

The General Anti-Avoidance Rule (GAAR) was introduced to capture aggressive tax planning transactions and filing positions that involve a misuse or abuse of one or more provisions of the Income Tax Act. The courts have held that the GAAR was enacted as a provision of last resort to catch abusive tax avoidance and was not intended to introduce uncertainty in tax planning. Still, many advisors and tax professionals recommend transactions to clients without fully realizing or comprehending the effect these rules can have on taxpayers if caught under its regime.

These changes to the GAAR rules are effective retroactively to transactions occurring on or after Jan. 1, 2024. The new preamble and 25% GAAR penalty are exceptions — they’re both effective as of the date of C-59’s royal assent on June 20, 2024.

Historically, this has been determined by using a three-part test that must be satisfied in full for the Minister of National Revenue to apply the GAAR:

• The benefit test: a tax benefit resulting from a transaction or part of a series of transactions;
• The avoidance transaction test: that the transaction cannot be said to have been reasonably undertaken or arranged primarily for a bona fide purpose other than to obtain a tax benefit; and
• The abusive transaction test: that it cannot be reasonably concluded that a tax benefit would be consistent with the object, spirit or purpose of the provisions relied upon by the taxpayer.

The onus is on the taxpayer to refute the benefit test and avoidance test, and on the Minister of National Revenue to establish the abusive transaction test is met.

A new threshold

What has now changed is that there is now a significant reduction of the threshold for the avoidance transaction test from a “primary purpose” test to a “one of the main purposes” test.

Put another way, if one of the main purposes of a transaction is to obtain the relevant tax benefit, the threshold would now be met, even if there are other legitimate purposes to undertake the transaction.  

Additionally, the amendments added a key clarification that economic substance is a relevant consideration at the “abusive transaction” stage of a GAAR analysis.

Note that this does not, on its face, deem a lack of economic substance to be abusive on its own. Instead, the rule now states that if an avoidance transaction is “significantly lacking in economic substance,” it is an important consideration that “tends to indicate” abusive tax avoidance.

The new economic substance provision lists three non-exhaustive factors that may establish that a transaction or series of transactions is significantly lacking in economic substance:

• all or substantially all of the opportunity for gain or profit and risk of loss of the taxpayer — taken together with those of all non-arm’s length taxpayers — remains unchanged, including because of a circular flow of funds, offsetting financial positions or the timing between steps in the series;
• it is reasonable to conclude that, at the time the transaction was entered into, the expected value of the tax benefit exceeded the expected non-tax economic return (which excludes both the tax benefit and any tax advantages connected to another jurisdiction); and
• it is reasonable to conclude that the entire, or almost entire, purpose for undertaking or arranging the transaction or series was to obtain the tax benefit (see the Income Tax Act, ss. 245 (4.2)).

The concept of a “series of transactions” remains broad. Despite the change in wording, it appears likely that the Supreme Court of Canada’s holding in Canada Trustco Mortgage Co. v. Canada at paragraph 34 will remain instructive in this regard:

“If at least one transaction in a series of transactions is an “avoidance transaction,” then the tax benefit that results from the series may be denied under the GAAR. … Conversely, if each transaction in a series was carried out primarily for bona fide non-tax purposes, the GAAR cannot be applied to deny a tax benefit.”

Put another way, the existence of an arm’s length or bona fide commercial transaction within a broader series of transactions may not be indicative of economic substance within the entire series of transactions. Similarly, the inclusion of a seemingly ancillary transaction with commercial elements in a series of transactions could potentially be excluded from the analysis if it is found to be unrelated to the remainder of the transactions that give rise to the tax benefit being subject to the GAAR.

Which transactions apply?

This creates a question in each instance on which transactions form the base of the series of transactions, and which do not.

In order to be able to take any reasonable position on the applicability of the GAAR, it is generally required for of National Revenue to define which provisions of the Income Tax Act are being alleged to be misused or abused.

However, in a GAAR analysis, the object, spirit, and purpose of the provisions are assessed. That can go beyond the usual statutory analysis, as noted by the Supreme Court in Deans Knight Income Corp. v. Canada.

While the court held this under the old rules, it is highly likely this case and its commentary on GAAR analysis remains instructive when assessing the new rules.

Historically, GAAR decisions have often turned on whether a misuse or abuse has occurred. This will likely still be the case with the application of the new rules. However, a significant question remains on what weight prior case law will have, considering that it is primarily based in the old rules.

There remains a relative dearth of case law on the new rules, as there is a significant (and justifiable) hesitation on behalf of taxpayers and their professionals to be the test case should a highly costly and unfavourable result distort interpretation of GAAR.

What appears to be a likely risk for taxpayers and tax professionals to be mindful of, is the potential for the Canada Revenue Agency to seek to apply GAAR automatically should they believe that a transaction is “significantly lacking in economic substance,” and assume the remainder of the abusive transaction test has been met. This is not how either the old rule or the new rule is intended to apply, as both are intended to require rigorous analysis to conclude that all three tests are met.

The value of a GAAR analysis

A GAAR analysis is often a key consideration in tax planning, and ultimately a GAAR analysis is a legal conclusion, not a statement of fact. It’s also generally costly on its own. Failure to take the time to assess and address the GAAR can become significantly costlier though, be it via legal opinion, tax insurance (a specialized offering that covers potential financial losses arising from a successful challenge of a taxpayer’s filing position by CRA or other tax authority), removal of problematic steps, or even refraining from engaging in a plan that may no longer be innocuous altogether.

While there may be some value in a GAAR opinion in certain cases, an opinion generally needs to be sufficiently qualified and well considered by specialist practitioners in order to result in a viable and realistic legal conclusion.

Where provisions intended to address GAAR risk are inserted directly into commercial documents, this may also serve to attract greater attention and re-assessment risk, so this needs to be assessed by experienced tax professionals on a case-by-case basis. Broader tax indemnities, tax insurance or other representations and warranties may be more appropriate depending on, amongst other things, the nature and scale of the transactions and sophistication of the parties.

With specific regard to professionals who purport to provide tax advice, it is also increasingly important to consider that failure to adequately advise a client could result in litigation, including potential cost awards against the planner as well if it is determined that they insufficiently warned the taxpayer of the risks of GAAR in tax planning.

Certain courts have attempted to impose a duty on professionals to assess the likelihood and potential implications of the GAAR’s application to tax planning, including a potential duty to discuss the GAAR when advising their clients, and even new developments in taxation relevant to their clients’ situations. (See for example, 4258843 Canada inc. v. KPMG.)

The GAAR is a highly technical and nuanced anti-avoidance regime with many unanswered questions in its application that has only intensified since the rollout of the new rules. For that reason, it is incumbent on professionals to be aware of its potential effects, and to seek out specialist advice where necessary and appropriate.

Now’s the time to remind clients with prescribed-rate loans that interest must be paid on or before Jan. 30.

If the 2024 interest isn’t paid by the deadline, investment income earned on the loan will be attributed to the lender for 2024 and all subsequent years. The result is a lost opportunity to split income, which is typically why a prescribed-rate loan is arranged.

When the annual interest is paid within 30 days of year-end, exemption from the attribution rules stands. Plus, the loan can remain in effect at the prescribed rate applicable when the loan was originally made.

The prescribed rate for the first quarter of 2025 is 4%, which is higher than the rate in some pre-2023 quarters.

“If you implemented the prescribed-rate loan strategy previously and were able to lock in a lower rate, it is important that the interest on the loan is paid (in cash) by the Jan. 30, 2025 deadline to preserve the benefits of the strategy,” according to an article from Grewal Guyatt LLP Chartered Professional Accountants, in Richmond Hill, Ont.

On the other hand, some taxpayers who already have prescribed-rate loans in place may have a higher rate of interest than the current 4%.

The prescribed rate began rising in the third quarter of 2022. Until then, the rate had been 1% for two years. In the first half of 2024, the prescribed rate rose as high as 6% before falling to 5% in the second half, and then 4% this year.

Taxpayers using a prescribed-rate loan strategy at a rate greater than 4% “may want to consider dismantling their current structure and take advantage of the lower prescribed rate starting Q1 2025,” Toronto-based RSM Canada LLP said in an article.

Typically, amending the interest rate on an existing loan is insufficient to lock in a new rate, RSM said.

“Instead, the debtor would need to liquidate their investments, incur the relevant tax implications due to the sale, repay the existing loan and introduce a new loan carrying the new prescribed rate,” the RSM article said. “Taxpayers considering this would need to model the triggered tax costs associated with liquidation against the possible tax benefits from re-establishing a new loan.”

The lower the prescribed rate, the greater the potential for income splitting using a prescribed-rate loan strategy.

Prescribed-rate loans can be used to split income with a lower-income spouse, common-law partner or other family member, who can use the loan to earn investment income. Prescribed-rate loans can also be used with family trusts to reduce the family’s tax liability.

To avoid the application of attribution rules in the Income Tax Act, the loan must be executed at an interest rate no less than the prescribed rate — the minimum interest rate as dictated by income tax regulations.

There are multiple strategies you can implement to reduce your clients’ tax burden, in 2024 and future years. These three are often overlooked. 

Remainder–of–the–year spousal RRSP contributions 

Spousal registered retirement savings plans (RRSPs) are often used to split income within a family. Individuals can contribute to a spousal RRSP, of which their spouse or common-law partner (CLP) is an annuitant. That allows the individual to claim a tax deduction for the year. The annuitant-spouse is taxed for future withdrawals, often at lower tax rates.  

However, there is a spousal RRSP attribution rule that prevents this if the plan is used for short-term benefit. When a withdrawal is made from a spousal RRSP — and contributions have been made to it or a similar spousal RRSP owned by the annuitant in the withdrawal year or previous two calendar years — the contributing spouse is taxed up to the amount contributed during the above period. The spousal RRSP annuitant is not taxed in this scenario. Exceptions apply in cases of death and relationship breakdown. 

RRSP contributions are generally tax-deductible if contributed to an RRSP from March to December (i.e., a remainder-of-the-year contribution) or within 60 days of the following year (i.e., a first-60-day contribution).  

Where spousal RRSP contributions are made in the remainder of the year, the spousal RRSP attribution period is accelerated by a year, allowing the couple to income-split sooner.  

For example, Sanjay is considering a spousal RRSP contribution for the 2024 tax year. He intends to make a first-60-day contribution in January 2025 but could make the contribution in December instead. If Sanjay makes the contribution in December 2024, it would be free from attribution upon withdrawal in 2027. If the contribution occurs in January, the attribution-free period would begin in 2028. 

Contribution	Attribution period	Attribution free
December 2024	2024-2026	2027
January 2025	2025-2027	2028

RRIF income for the purpose of income-splitting 

Up to 50% of eligible pension income (EPI) can be split between spouses and CLPs. Where a tax bracket differential exists between the spouses, they can achieve tax savings. EPI depends on the age of the income recipient and the type of income received. For taxpayers of any age, EPI generally includes: 

• periodic pension payments from a registered pension plan; and 

• successor annuitant payments from a registered retirement income fund (RRIF). 

Age 65 is required by the Quebec Taxation Act. 

If the transferring spouse is 65 and older (the transferee spouse can be any age), eligible pension income normally includes: 

• RRIF payments; 
• certain annuity payments such as a deferred profit-sharing plan, RRSP and non-registered plans (these are splitable at any age if received due to a spouse’s death; in Quebec, age 65 is required); and 
• certain retirement compensation arrangement payments. 

Taxpayers 65 and older can consider creating EPI before year-end, perhaps by converting RRSPs to RRIFs to receive splitable RRIF income.  

In addition to savings from their tax-rate differential, the couple may benefit from access to — and the potential doubling of — the pension income tax credit (worth approximately $300 federally, plus a provincial or territorial credit) and preservation of the age credit (worth approximately $1,320 federally in 2024, plus a provincial or territorial credit). This will be clawed back gradually once a taxpayer’s net income reaches $44,325 (in 2024). 

Also, for seniors receiving Old Age Security (OAS) benefits, EPI splitting can preserve this benefit which, for 2024, is fully* clawed back once net income reaches $148,451 for those between 65 and 74, and $154,196 for those 75 and older.  

The couple should consider if the transferring spouse is eligible for the spousal credit. It is available when a spouse’s income is below a certain amount (the basic personal amount plus any amount related to a mental or physical impairment).  

If the client is eligible for the spousal credit, splitting EPI would add taxable income to the transferee spouse, resulting in a potential clawback of the spousal credit. The same is true for the age credit and OAS benefits to which the transferee spouse may be entitled. 

Of course, if a taxpayer has already received EPI for the year, adding RRIF income may not be a priority depending on the income and tax bracket levels of the spouses. 

Pre-year-end TFSA withdrawals 

Tax-free savings accounts (TFSAs) offer multiple benefits, including tax-free income and withdrawals. Clients understand their value. What few know however is that if they’ve made a TFSA withdrawal, they can recontribute the withdrawn amount to their TFSA as early as the following calendar year.  

The Canada Revenue Agency adds the withdrawal amount to the plan holder’s TFSA contribution room the year after the withdrawal. So, the client can recontribute their money as early as Jan. 1, with no impact to new TFSA contribution room.  

Here’s an example. Stacey has maximized her TFSA contributions for 2024. She needs cash for an emergency, so she is considering a $10,000 withdrawal from her account.  

A December withdrawal will allow her to recontribute the $10,000 to her TFSA as early as January 2025. That’s in addition to the newly acquired TFSA contribution room of $7,000 for that year. Had she waited until January 2025 to make her withdrawal, she would not be able to make a recontribution until January 2026. 

Withdrawal date	Withdrawal amount	Contribution room
		2024	2025	2026
December 2024	$10,000	$0	$17,000	$7,000
January 2025	$10,000	$0	$7,000	$17,000

Year-end tax planning doesn’t have to be complex. Sometimes simple strategies can deliver value and maximize wealth. 

*The original version of this article said OAS benefits were clawed back gradually at the stated income levels. In fact, the benefits are fully clawed back at the stated income levels. Return to the corrected sentence.

Taxpayers have a new planning opportunity to consider in 2024, given this year’s proposed capital gains tax changes.

“What’s new and unique, for the first time in 2024, is tax-gain selling,” said Jamie Golombek, managing director, tax and estate planning with CIBC Private Wealth, in a recent interview. 

Listen to the full podcast on Advisor To Go, powered by CIBC Asset Management.

Tax-gain selling helps address the proposed change to the capital gains inclusion rate.

“As of June 25, the capital gains inclusion rate was increased to two-thirds for individuals with more than $250,000 of gains annually,” Golombek said. “So, the question we’re talking about with many of our clients is whether or not it makes sense to crystallize $250,000 of capital gains before the end of the year to take advantage of the fact that the first $250,000 of gains are taxed at the lower 50% inclusion rate.”

Crystallization of publicly traded shares is straightforward: sell the shares in the market and immediately repurchase them. 

“As opposed to tax-loss selling, where you have to wait 30 days to buy [the shares] back, there’s no equivalent superficial gain rule, and therefore you can literally buy back that stock immediately and be able to recognize that gain,” Golombek said. 

To decide whether tax-gain selling makes sense, Golombek suggested investors consider their expected rate of return and time horizon.

For example, if the tax you don’t pay for 2024 were invested to earn 6% capital gains, compounded annually, it would take about eight years of tax-deferred growth, after-tax, to beat the tax savings attributable to the lower inclusion rate.

Common scenarios when tax-gain selling may make sense include plans to sell a vacation or income property in a future year, Golombek said, as such transactions often result in significant capital gains that could push the seller into a higher tax bracket. 

“Similarly, on death, the deemed disposition at fair market value could put someone with gains easily over $250,000,” he said.

Other year-end tax strategies, such as tax-loss selling and charitable giving, still apply in 2024.

Tax-loss selling means selling investments in non-registered accounts with accrued losses at year-end to offset capital gains realized elsewhere. Capital losses can be applied against current-year capital gains, carried back three years, or carried forward indefinitely.

Golombek noted that in 2024, the move to T+1 settlement means investors have until Dec. 30 to execute trades and still settle by year-end.

He once again reminded investors about the superficial loss rule, which applies if the security is repurchased within 30 days of the sale date by the individual, their spouse or partner, their corporation or one controlled by their spouse or partner, or a trust of which the individual or their spouse or partner is a majority beneficiary, such as an RRSP or TFSA.

In such cases, “that loss is denied and added to the [adjusted cost base] of the repurchased securities,” he said.

He also suggested being mindful of year-end deadlines for registered accounts.

Those turning 71 this year must convert their RRSPs to RRIFs by Dec. 31 as well as make any final RRSP contributions. If they have a younger spouse or partner, they can still use their contribution room after 2024 to contribute to a spousal RRSP, Golombek noted.

Those planning TFSA withdrawals in early 2025 — for a wedding, renovations or car purchase, for example — should consider withdrawing the funds in late 2024. 

“The reason is that any TFSA withdrawals will be added to your contribution room, beginning the following calendar year,” Golombek said.

He also suggested first-time homebuyers open a first home savings account (FHSA) before year-end. 

“Even if you don’t contribute right away, opening the account gives you $8,000 of contribution room, with another $8,000 added next year,” Golombek said.

Homeowners who made renovations can benefit from two tax credits. 

The home accessibility tax credit is worth up to $3,000 for certain renovations for seniors and those eligible for the disability tax credit. The multigenerational home renovation tax credit is worth up to $7,500 for creating a self-contained dwelling for a qualifying relative. 

Also, charitable gifts must be made by Dec. 31 to get a tax receipt for 2024, Golombek said.

“The big opportunity in charitable giving, as many of us would have experienced significant gains on various stock positions in non-registered accounts, is to make a gift in-kind to a registered charity,” he said. “If you do that, not only do you get a receipt for the fair market value but you also pay zero capital gains tax.”

This is especially beneficial for those with gains exceeding $250,000, given the proposed higher capital gains inclusion rate.

For those unsure which charity to support, Golombek suggested donor-advised funds. 

“A donor-advised fund is an account that you have with a public foundation where you make that gift, either of cash or of securities in-kind, you get your receipt for 2024, but the money is now invested inside the donor-advised fund,” he said. “You can decide in the future which charities you wish to support.”

For business owners considering salary versus dividends, Golombek said that, as a general rule, when a business owner needs to withdraw funds from their corporation, it is probably worthwhile taking out at least enough money to create maximum RRSP contribution room.

“So, for 2024 you want a salary or bonus of $180,500,” he said. “At 18%, that will give you the maximum RRSP contribution for next year, which is $32,490.”

Read more of Golombek’s year-end tax tips.

This article is part of the Advisor To Go program, powered by CIBC Asset Management. It was written without input from the sponsor.

Applying for the disability tax credit (DTC) can be a daunting task, as applicants must ask their medical practitioner to fill in an extensive form. Experts encourage applicants to be prepared with the right documentation, be thorough when detailing their conditions and be cautious with DTC promoters.

The DTC is a non-refundable tax credit that can help eligible adults cut their taxable income by thousands of dollars. The credit is meant to help offset the costs of physical and/or mental impairments.

Those eligible for the DTC may then be eligible for plans and programs such as the registered disability savings plan (RDSP) and the Canada disability savings grant, among other programs. The grant matches up to $70,000 in an RDSP over the beneficiary’s lifetime.

Advisors should regularly ask about a client’s family and their health to identify someone who could qualify for the DTC, said Jason Heath, managing director with Objective Financial Partners in Toronto. Clients have shared their parents’ mobility challenges, for example, and not realized those challenges were severe enough to warrant applying for the DTC.

“One of the most common mistakes that I come across is people thinking that they will not qualify,” Heath said. “It’s a very lucrative tax credit and you’re probably better off giving it a try rather than assuming that you don’t qualify.”

Applying for the DTC requires both the applicant and their doctor to fill out a 16-page form.

“If the person has the opportunity to download a blank copy of the form and look at it, [get] an idea of where they fit and jot some notes on the form and provide it to the doctor, [that might] allow them to get a start on it right there,” said Wayne MacLeod, a Nova Scotia family doctor and co-founder of Benefits2, a DTC application company based in Burlington, Ont.

The applicant should respond thoroughly to the questions asking about the cumulative effects of their impairments, not just acute or separate effects, MacLeod said. For example, someone who has both heart disease and osteoarthritis could have enough difficulty walking to qualify for the credit.

For qualifying lifelong congenital disabilities, such as autism, the CRA may provide up to 10 years of retroactive tax refunds, so applying earlier is better, Heath said.

If an applicant uses physical supports such as canes, community support such as respite care and has paid for specialist services, they should include that documentation with their application, MacLeod said.

Doctors tend to be more focused on the medical aspects of a disability and might ask about the pain instead of how it affects their mobility, MacLeod said. Patients should be ready to articulate their impairments to the medical practitioner.

“Be prepared by knowing the criteria [of the DTC] and say, ‘Yes, doctor, I’m not in as much pain, but I’m still having problems walking,’” MacLeod said. “Or, ‘I have to stop for rest because I’m having trouble breathing.’”

Some medical practitioners have a conservative view of what a qualifying disability is, so a patient should approach with an open mind and explain how the credit would help them financially. “There’s no penalty for applying,” MacLeod said. “Make it clear to the practitioner that you’re willing to pay for their time, and you only want them to answer honestly.”

Even if a medical practitioner charges fees to complete the form, it’s a small cost relative to the potential benefit, Heath said. The fee is tax deductible as an eligible medical expense, he added.

Both Heath and MacLeod warned that DTC promoters — firms that assist people with applying for the DTC — may charge hefty fees for their service.

Many promoters “don’t necessarily have significant specialized expertise,” Heath said. “You don’t need somebody to help you to apply for the disability tax credit. It is the sort of thing that you can do on your own.”

In 2021, the Supreme Court of British Columbia granted an injunction stopping the federal government from imposing a $100 fixed-fee schedule on DTC promoters. The injunction has not yet been lifted.

More tips

In a LinkedIn post, MacLeod offered more DTC application tips:

• Fill out the form based on your worst days. Don’t underestimate the degree of your impairment.
• Hearing and vision impairments have specific criteria, but hearing and visual impairments can affect daily tasks such as walking and meal preparation.
• The mental functions section involving “goals” doesn’t refer to long-term plans. Instead, it refers to daily goals like getting a shopping list together and buying groceries.

Clients looking to calculate or plan for their possible exposure to alternative minimum tax (AMT) in 2024 will be largely operating in the dark, particularly after the federal government proposed changes to the capital gains inclusion rate (CGIR) in the 2024 budget.

A revised AMT regime became effective on Jan. 1 of this year, retroactively, when legislation to implement it was enacted on June 20. Meanwhile, the Department of Finance has yet to introduce draft legislation to implement changes to the CGIR — changes that might affect a taxpayer’s potential AMT.

A taxpayer “would have a very, very difficult time trying to compute their AMT exposure” by relying solely on guidance from the Canada Revenue Agency (CRA) and CGIR legislation — once in place — without access to CRA tax forms or professional tax advice or software, said Ameer Abdulla, a partner with EY Canada in Waterloo, Ont.

In an email, the CRA told Advisor.ca the 2024 versions of Form T691 Alternative Minimum Tax, which taxpayers use to calculate their AMT, and Schedule 3: Capital Gains (and Losses) are “still under development as we wait for final legislative details.” Both forms will be uploaded to the CRA website “by end of January 2025,” the agency said.

“It’s going to be tricky for people to plan if they’re waiting for the [tax] forms,” said Jay Goodis, a chartered professional accountant and CEO of Tax Templates Inc. in Aurora, Ont., which provides tax calculations and modelling for clients. While AMT calculations can be made without an updated T691 by following budget documentation and draft legislation when released, “very few people can determine AMT impacts without access to software,” he said.

And clients can’t be certain if the legislation to implement the CGIR changes will be enacted, or enacted as proposed.

The Department of Finance said it expects to release the draft legislation over the summer to increase the CGIR to two-thirds from one-half on capital gains above $250,000 earned by individuals, including two types of trusts.

The AMT, first introduced in 1986, is a parallel method of calculating tax that allows fewer deductions, exemptions and credits than under the ordinary tax rules, and is intended to ensure high earners pay at least a minimum percentage of tax.

The taxpayer calculates tax under the AMT and under the regular tax regime and pays whichever is higher. AMT paid can be carried forward for up to seven years and recovered to the extent that regular tax exceeds AMT in those years.

Under changes proposed in the 2023 federal budget and passed into legislation in 2024, the AMT rate rose to 20.5% from 15%, and the exemption amount rose to $173,205 (2024), indexed annually, from $40,000.

Under the revised AMT, 100% of capital gains are included in calculating adjusted taxable income for AMT purposes, up from 80% under the old rules.

Clients who sold appreciated property this year, including those who might have accelerated a sale ahead of the June 25 effective date for the increased CGIR, “might have a disproportionate amount of capital gains potentially [in 2024], which can suck you into AMT,” said Hemal Balsara, head of tax, retirement and estate planning, individual insurance, with Manulife Financial Corp. in Toronto.

Balsara said taxpayers with incomes between $173,205 and $246,752 (the second-highest federal tax bracket) may be more likely to face AMT than those in the highest tax bracket, if most of the income is in the form of capital gains.

Income in the second-highest bracket is taxed at a 29% rate, meaning the effective capital gain tax rate would be 14.5% (half of 29%) on the first $250,000 and 19.3% (two-thirds of 29%) on gains above that amount. As those rates are both under the 20.5% AMT rate, the taxpayer may have AMT payable.

In comparison, someone in the top tax bracket with a federal rate of 33% would face tax of 16.5% on the first $250,000 of capital gains and 22.0% on capital gains above that, under the regular tax system. In this case, given that only the rate on capital gains above the $250,000 threshold is higher than the 20.5% AMT rate, it may be less likely the taxpayer would have AMT payable.

Abdulla said taxpayers earning a significant capital gain in 2024 will have to ask themselves how likely they feel the proposed CGIR changes will become law and how much to set aside from a property sale to pay income tax associated with the increased CGIR. And if revised AMT will apply, the taxpayer would also need to consider how much it would be in their circumstances.

To estimate the appropriate holdback for the tax bill, a client should model what their AMT and income tax would be under the current CGIR regime and what their AMT and income tax would be under the proposed higher CGIR, Abdulla said.

Goodis said his firm’s fastest-growing client segment has been financial advisors looking to help clients model the tax consequences of transactions under consideration, including the possible impact of the revised AMT.

With Finance’s recent changes, “accountants are really busy with compliance,” Goodis said. “I’d say a lot more tax planning has fallen on the shoulders of the financial advisor.”

Clients with private corporations may face a nasty tax hit if they make assumptions about how much they can distribute from their capital dividend account (CDA) in 2024.

A CDA is a notional account — not an actual pool of money — that keeps track of tax-free amounts accumulated by a private corporation. A corporation may distribute amounts from the CDA to shareholders at any time during its fiscal year in the form of tax-free capital dividends.

Clients may believe that a capital gain realized before June 25, 2024, resulted in adding 50% of the gain to the corporation’s CDA.

That’s not necessarily the case.

According to transitional rules released by the federal government on June 10, the calculation for determining the CDA balance for a corporation’s fiscal year that includes June 25, 2024, when the capital gains inclusion rate (CGIR) rose to two-thirds from one-half, is determined based on a blended CGIR — not 50% before June 25 and 67% after June 25.

That means a corporation may have a lower CDA balance than expected when it distributes a capital dividend in its 2024 fiscal year. A corporation that distributes capital dividends above the amount available in its CDA faces a 60% tax on the excess, although this penalty can be avoided by electing to have the dividends treated as taxable dividends.

“It’s not fair that a taxpayer that incurred gains in a fiscal year that includes June 25, 2024, properly calculated the CDA balance based on the law at that time, and [for example] made a capital dividend election prior to the federal budget [when the CGIR hike was announced] could be faced with a future excess amount penalty because of the mechanics of how the computation is proposed to work,” said Emily Mantle, founder of CPA Compass in Sudbury, Ont.

The Department of Finance did not directly respond to questions from Advisor.ca regarding whether it was aware of the CDA issue and said draft legislation implementing the capital gains taxation changes would be published over the summer.

Tax-free amounts accumulated by a private corporation include the tax-free portion of capital gains realized by the corporation that exceed the non-deductible portion of its capital losses.

A corporation may declare a capital dividend at any point during the taxation year based on the CDA balance at that time. To make a distribution from the CDA, the corporation must file an election using Form T2054 Election for a Capital Dividend Under Subsection 83(2).

For example, a corporation that realized a $100 capital gain before June 25 might expect to distribute $50 of tax-free capital dividends from its CDA even if it filed the election after June 25.

However, the June 10 proposed legislation introduced a new formula to calculate taxable capital gains to account for the two CGIRs in 2024.

The formula works like this: the taxpayer multiplies their pre-June 25 (Period 1) net capital gains by half, then multiplies their post-June 24 (Period 2) net capital gains by two-thirds and adds the two figures together. That figure is then divided by the total gains in Periods 1 and 2 — the full fiscal year’s net gains.

A June 17 report from EY Canada gives an example.

A corporation with a Dec. 31, 2024, year end realizes a $100 capital gain and pays out a capital dividend of $50 in Period 1. It also realizes a $100 capital gain in Period 2.

Using the formula above, the corporation’s blended inclusion rate is 58.33% for the year.

Thus, at the time the corporation made the distribution, the CDA balance was only $41.67, not $50. The corporation would be subject to the 60% penalty tax on the $8.33 excess amount.

While the corporation and the shareholders who received the dividend can elect to treat the excess amount as a taxable dividend, everyone is still left in a worse position overall.

The proposed transitional year rules create uncertainty for corporate clients, said Kenneth Keung, director of Canadian tax advisory with Moodys Tax in Calgary.

A client with a corporation that realized a capital gain in Period 1 and would like to distribute a capital dividend this fiscal year, but hasn’t yet, won’t know its blended CGIR at the end of the year unless it knows the amount of capital gains it will realize in Period 2.

An incorporated client could choose to pay out a capital dividend assuming a two-thirds blended CGIR, the highest CGIR possible, with only one-third of the gain added to the CDA, Keung said. If the corporation’s blended CGIR for the year is lower than two-thirds, it would result in a higher CDA balance that could be distributed later.

Mantle said she’s recommending clients wait to distribute capital dividends until their corporation’s fiscal year end, when their blended CGIR for 2024 can be determined with certainty.

Clients may also choose to wait until Finance releases draft legislation this summer to see whether and how they address the issue, Mantle said.

“[If Finance] eliminates the application of a blended inclusion rate, then the timing of a capital dividend election can be re-evaluated because there wouldn’t be any uncertainty in the computation [of the CDA balance],” Mantle said.

In guidance published June 10, Finance said draft legislation to implement technical changes to the CGIR would be available at the end of July. The department did not directly respond to a question as to whether the draft legislation would be available by then.

When a company goes bankrupt or becomes insolvent, investors left holding the worthless shares can use a little-known election to claim the resulting capital loss on their tax returns.

Investors in this situation usually cannot sell the shares if they’ve been delisted, which means investors can’t trigger a capital loss in the typical sense. However, subsection 50(1) of the Income Tax Act allows a taxpayer to make a deemed disposition of shares from insolvent or bankrupt firms.

This election is due when the taxpayer files their return: April 30 for most individuals and June 15 for those who are self-employed, said Ray Loucks, director of tax with Crowe MacKay LLP in Vancouver.

The Canada Revenue Agency (CRA) has no prescribed form for this election, so the process is more involved than checking a box.

The first step is to determine that the corporation is indeed insolvent or bankrupt, or that there’s a reasonable expectation the corporation will be dissolved, said Bianca Tomenson, senior financial planner and director of financial planning and insurance solutions with Castlemark Wealth Management Inc. in Toronto.

“When you file under that section, you have to submit supporting documents in writing,” she said. “So, you do have to gather the backup.” That could include trade confirmations, financial statements, and official documentation and correspondence from the company.

The taxpayer must also determine the amount of the capital loss they’re claiming and report it on Schedule 3. To do this, they would subtract the current value of the shares, which is zero, from their adjusted cost base (ACB).

In many cases, the taxpayer will be able to calculate their ACB using their transaction histories, Tomenson said. She also warned that a taxpayer who purchased their shares at different prices must calculate their average ACB per unit.

“Typically, the institution you invest with will track the average cost of the shares,” she said. “But if you transfer institutions, sometimes that information can get lost along the way. So, it’s important to make sure you have the supporting documentation and the trade confirmations from the year of purchase.”

All backup information, as well as a letter stating that the taxpayer is electing to apply subsection 50(1) of the Income Tax Act to the affected shares, then goes to the CRA.

The letter and documentation must be mailed, even if the taxpayer files the rest of their return online. In such cases, Tomenson said the CRA usually connects the election to the taxpayer using their address and social insurance number, so that information should appear in the letter.

The CRA will then review the election, potentially getting in touch for more information if needed. The return would need to be adjusted if the CRA disagrees with the taxpayer’s analysis.

“When the election is filed properly … the taxpayer’s shares or debt are deemed to have been disposed of for no proceeds at the end of the year and reacquired by the taxpayer immediately thereafter at a cost equal to nil,” which is the fair market value of the shares, states a Crowe Soberman blog post. (The superficial loss rules don’t apply here.)

With this year’s increase to the capital gains inclusion rate, claiming all available capital losses becomes more important, as doing so may allow a taxpayer to dip under the $250,000 threshold where the rate remains 50%.

Net capital losses may be carried back three years and forward indefinitely. These losses are adjusted to reflect the inclusion rate applicable to the year in which the net capital loss is deducted.

In the unlikely case that the worthless shares later regain value, Tomenson warned that a taxpayer who still owns the shares after making the election and sells them for more than $0 will incur capital gains taxes.

For example, say an investor bought a share for $100, the share became worthless and the investor made the 50(1) election. After the election, the ACB for the share is $0. If the share price later rises to $300 and the investor sells their share, they will owe capital gains tax on a $300 gain, not the $200 gain they would have been taxed on had they not elected to use 50(1).

Clients who didn’t know about the election and missed the filing deadline can still submit.

“This election can be late-filed at the discretion of the CRA, but a penalty of $100 per month late is applicable and must be paid with the filing of the election,” Loucks said. “There’s always the possibility CRA could refuse it, but I haven’t seen that, especially when the taxpayer pays the penalty.”

What about the terminated Emerge ETFs?

Loucks said the 50(1) election could be used by the small proportion of investors who held the delisted and terminated Emerge ETFs in their non-registered accounts and incurred capital losses. As the ETFs have been terminated, they now have a fair market value of nil. (Emerge Canada Inc. itself does not appear in the national bankruptcy or insolvency database as of press time.)

Proceeds of the ETFs were paid out to unitholders toward the end of December 2023. Even if the payout settled in 2024, Loucks said the CRA may view the disposition as taking place in 2023.

“It is a question of fact as to when disposition of the ETF units took place,” Loucks said. He said the Income Tax Act states that disposition occurs “at the time that the unitholders were entitled to proceeds of disposition.”

“From the notice provided by Emerge Canada Inc., the unitholders should be deemed to have disposed of their units when the ETFs were terminated,” he said, “as they had a vested right to the net sale price and there were no conditions precedent to be fulfilled in order for the ETFs’ custodian to make the payments at that time.”

If a unitholder didn’t claim the loss on their 2023 return, Loucks said the late-filing provision would apply, adding that the unitholder would need to weigh the expected benefit of claiming the capital loss against the $100 per month penalty.

Loucks said the 50(1) election could also be used to claim a capital loss associated with the receivable owing to certain Emerge ETF unitholders if the receivable is not repaid and the unitholder decides to write it off as a bad debt.