Three strategies for year-end tax planning 

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. 

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. 

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

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.