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Tax Tips and Planning

The rules are always changing. Here are some tax tips that will help save you money.

2025 Tax Information and Reminders

2024 Donation Extension

As a result of the Canada Post four-week mail stoppage, the federal government announced that it plans to extend the deadline for making donations (other than gifts-in-kind) eligible for tax support in the 2024 tax year until February 28, 2025. Many charities rely on mass mailing campaigns during the holiday season for their fundraising efforts. The proposed extension would provide donors with additional time to ensure that charities can receive and process their contributions. The donation must be in the form of cash or transferred by way of cheque, credit card, money order or electronic payment. It excludes donations made by payroll deduction or in a will of a taxpayer who died after 2024. For more information, see: News Release: Extension of 2024 charitable donations.

2025 TFSA limit is $7,000

The Tax-Free Savings Account (TFSA) limit is $7,000 for 2025.  The limit was $7,000 for 2024, $6,500 for 2023, $6,000 for 2022 to 2019, $5,500 for 2018 to 2016, $10,000 for 2015, $5,500 for 2014 and 2013. For 2009 to 2012, the limit was $5,000. The total room available in 2025 for someone who has never contributed and has been eligible for the TFSA since its introduction in 2009 is $102,000.

Contributions can be made by Canadian residents aged 18 or over. Any unused contribution room can be carried forward. There is no lifetime limit to the amount of the contributions. If a person has contribution room, but no funds to contribute, they may contribute funds given to them by their spouse or common-law partner, with no attribution of income to the spouse or common-law partner. Note that a withdrawal in any year does not increase the TFSA room until the following calendar year. If you are thinking of making a withdrawal close to year end, make sure it is done by December 31 so you can have the withdrawal amount added back to the TFSA room sooner.

2025 RRSP Limit

The RRSP contribution limit is $32,490 in 2025 (up from $31,560 in 2024). The limit will increase to $33,810 in 2026. If you or your employer do not contribute to a pension plan, your 2025 “earned income” for RRSP purposes must be at least $187,833.33 to create RRSP contribution room of $33,810 in 2025. Please see the news release.

2025 FHSA Limit is $8,000

The First Home Savings Account (FHSA) limit was $8,000 in 2024 and 2023. The total room available in 2025 for someone who has never contributed and had opened a FHSA in 2023 is $16,000 as all unused participation room can only be carried forward, up to a maximum of $8,000.

The FHSA was introduced in 2023 to assist Canadians in purchasing their first home. Contributions to your FHSA are calculated on a calendar basis and start in the year you open your first account. Contributions are tax deductible and qualifying withdrawals are tax-free. The FHSA has a lifetime participation limit of $40,000 over 15 years, which includes contributions and transfers from your RRSPs. For more information, and to see if you qualify, please see CRA’s First Home Savings Account.

2025 Employment Insurance Rates

Employment Insurance (EI) rates for 2025 have decreased to 1.64% (from 1.66% in 2024) of earnings for employees. The maximum insurable earnings for 2025 increases to $65,700 from $63,200 in 2024. The maximum annual premium for employees increased to $1,077.48 (from $1,049.12 in 2024). The rate for employers is 1.4 times the employee rate or 2.296%. Therefore, the maximum employer premium for 2025 is $1,508.47 (up from $1,468.77 in 2024). Please see CRA’s EI premium rates and maximums.

2025 Canada Pension Plan Rates

The maximum pensionable earnings under the Canada Pension Plan (CPP) for 2025 will be $71,300 – up from $68,500 in 2024.

Contributors who earn more than $71,300 are required to make additional payments (CPP2) on 4% of their income, up to $81,200 (maximum of $396). This amount applies to each of the employee and the employer, for more information, please see news release.

The basic exemption amount for 2025 remains at $3,500. Individuals who earn less than that amount do not need to contribute to the CPP.

The employee and employer contribution rates for 2025 have remained at 5.95% in 2025, and the self-employed contribution rate will remain at 11.9%.

The maximum employer and employee contribution to the plan for 2025 will be $4,034.10 and the maximum self-employed contribution will be $8,068.20. The maximums in 2024 were $3,867.50 and $7,735. For CPP2, the maximum is $396.00 and the maximum self-employed CPP2 contribution will be $792.

Canada Pension Plan for Persons Between Ages 60 and 70

Beginning in 2012, employers must withhold and remit CPP on wages paid to employees between ages 60 and 70, even if the employee is collecting CPP benefits. If the employee is between 65 and 70, they may file an election to opt out of paying CPP. These rules also apply to self-employed individuals. In order to avoid paying CPP, the election must be filed with CRA to take effect on the first of the following month. Please contact us for more information.

Employer Health Tax

As outlined in the 2020 Ontario Budget, the EHT exemption will remain at $1,000,000. Eligible employers who are members of an associated group are required to enter into an agreement to share the tax exemption using the Associated Employer Exemption Allocation Form. The next scheduled adjustment to the exemption for inflation has been moved to January 1, 2029. For more information, see the Ontario Ministry of Finance website.

Accelerated Capital Cost Allowance (CCA)

Accelerated CCA is available on eligible additions from November 21, 2018 to December 31, 2027. Prior to the rule change, the “half-year rule” allowed half a year of capital cost allowance in the year of acquisition.  Now, for most assets, the usual half year of CCA available in the year of acquisition will be tripled for acquisitions to December 31, 2023.  For example, a Class 10 vehicle which is normally subject to a 15% CCA claim in the first year would now be allowed a 45% CCA claim.  For acquisitions in calendar years 2024 to 2027, the usual half year of CCA will effectively be doubled rather than tripled. After the acquisition year, CCA will return to the normal rate on the remaining pool in the CCA class.

Tuition Credits

For 2024 federal tax purposes, the tuition credit is available.

Canada Carbon Rebate (CCR) (previously “Climate Action Incentive” Payment)

Prior to 2021, the climate action incentive (CAI) was a refundable credit which consisted of a basic amount and a supplement for residents of small and rural communities. For 2022 and forward the CAI was paid as a quarterly benefit starting in July 2022.  You don’t need to apply to receive the payment for the CAI or CCR. You need to file a tax return. If you have a spouse or common-law partner, only one of you can get the credit for the family.  The credit will be paid to the spouse or common-law partner whose tax return is assessed first. To claim the rural supplement, you must tick the box on page 2 of your income tax and benefit return.  For more information, see CRA’s information on the Canada Carbon Rebate for Individuals . The basic amount for a resident of Ontario is $560 and the spouse or common-law partner amount is $280 and $140 for each qualified dependant. The rural supplement is $112 for an individual, $56 for the spouse or common-law partner and $28 for each qualified dependant. The 2024 Fall Economic Statement proposed the expansion of the rural areas applicable as of the 2024 taxation year, meaning that the first payments under the proposed rules would occur in April 2025. You can check out the expanded rural areas here (see Table 2).

Capital Gains Exemption

The lifetime capital gains exemption for capital gains on qualified small business corporation shares and qualified farm property is $1,250,000 for 2025. For more information, see CRA’s January 31, 2025 news release.

Prescribed Interest Rates

The prescribed rates for the first quarter of 2025 are as follows:

  • The interest rate charged on overdue taxes, Canada Pension Plan contributions, and employment insurance premiums will be 8%.
  • The interest rate to be paid on corporate taxpayer overpayments will be 4%.
  • The interest rate to be paid on non-corporate taxpayer overpayments will be 6%.
  • The interest rate used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans will be 4%.
  • The interest rate for corporate taxpayers’ pertinent loans or indebtedness will be 7.78%.

For more information, see CRA’s website on prescribed interest rates.

Proposed Changes Not Yet Law

  • Capital Gains Inclusion – For 2024 and 2025, the capital gains inclusion rate will be 50%. On January 31, 2025, the federal government announced the deferral of the implementation of the 2/3 inclusion rate from June 25, 2024 to January 1, 2026. (The federal government had proposed a significant change to the capital gains tax structure, increasing the inclusion rate to 66.67% for capital gains realized on or after June 25, 2024. If enacted, two-thirds of any capital gains earned from the sale of investments or any other capital items would be included in taxable income, up from the current rate of 50% for individuals, corporations and trusts. For individual taxpayers, the higher inclusion rate would have applied only to capital gains exceeding $250,000.)
  • Canadian Entrepreneurs’ Incentive – Proposed in the 2024 federal budget, this tax incentive aims to lower the inclusion rate to 33.3% on a lifetime maximum of $2 million in eligible capital gains when selling all or part of a business. This policy is designed to provide significant tax relief to business owners, encouraging entrepreneurship and investment.
  • Accelerated Investment Incentive (AII) – As part of the 2024 Fall Economic Statement, the government intends to extend the AII for a five year period, with a four-year phase-out after 2029. It would apply to qualifying property acquired on or after January 1, 2025 and available for use before 2030.

 

2025 Year End Tax Planning

  1. Consider paying reasonable salaries to family members before year end. Reasonable salaries can be deducted by your business and will be taxable to them at possibly lower rates.
  2. Businesses should purchase capital assets before year end. Assets purchased and in use before the business year end are eligible for accelerated capital cost allowance rates. From 2024 to 2027, these accelerated rates are being phased out. (There is a proposal in place from the 2024 Federal Economic Statement that the Accelerated Investment Incentive would be fully reinstated for qualifying property acquired on or after January 1, 2025 that becomes available for use before 2030. It would be phased out starting in 2030 and fully eliminated for property that becomes available for use after 2033 (as outlined in Table 3). The 2024 Economic Statement also proposed to reinstate the immediate expensing rules for Manufacturing or Processing Machinery and Equipment, Clean Energy Generation and Energy Conservation Equipment and Zero-Emission Vehicles.)
  3. Owner-managers should consider their salary/dividend mix from their corporation. If you have drawn funds from your corporation throughout the year, you should determine whether these amounts should be characterized as salary or dividends or a combination before the year end. Ritchie Shortt & Tully LLP can help you with this decision.
  4. Consider gifting funds or making interest-free loans to your spouse or an adult child to contribute to the Tax-Free Savings Account.
  5. Consider selling investments with accrued losses before the end of the year to offset any gains you have had during the year. Capital losses in excess of gains can be carried back three years and forward indefinitely.
  6. Contribute to your RRSP by March 3, 2025 to make the contribution deductible for 2024. Also remember to make your required Home Buyer’s repayment by March 3, 2025.
  7. Charitable donations (gifts-in-kind contributions), medical expenses, political donations, child care expenses, investment counsel fees, professional dues and contributions to the First Home Savings Plan should be paid by December 31 to be creditable or deductible in the calendar year.
  8. 2024 Donation Extension – As a result of the Canada Post four-week mail stoppage, the federal government announced that it plans to extend the deadline for making donations (other than gifts-in-kind) eligible for tax support in the 2024 tax year until February 28, 2025. Many charities rely on mass mailing campaigns during the holiday season for their fundraising efforts. The proposed extension would provide donors with additional time to ensure that charities can receive and process their contributions. The donation must be in the form of cash or transferred by way of cheque, credit card, money order or electronic payment. It excludes donations made by payroll deduction or in a will of a taxpayer who died after 2024. For more information, see: News Release: Extension of 2024 charitable donations.
  9. Contribute to Registered Education Savings Plans for your children by December 31. Rather than an annual RESP contribution limit there is now a lifetime contribution limit of $50,000. When you contribute money to any RESP, the federal government will deposit an additional amount – the Canada Education Savings Grant (CESG) – equal to 20% of your contribution up to certain limits. The maximum CESG each year is $500 (20% x $2,500 contribution). The lifetime CESG limit is $7,200.
  10. Direct Deposit – If you haven’t already set up direct deposit with the Canada Revenue Agency (CRA), it’s a good time to do so. This ensures that any refunds or benefits (such as GST/HST credits, child tax benefits, etc.) are deposited directly into your bank account, avoiding delays. You can do this online through your CRA “My Account”, by phone (1-800-959-8281), by completing and mailing the Direct Deposit Enrolment Form, or by providing us with a void cheque (we will submit this information to CRA when we electronically file your return).

By following these strategies and making the required contributions and payments by the appropriate deadlines, you can optimize your tax situation and potentially reduce your overall tax liability when filing your 2024 tax return in 2025. As always, it’s recommended to consult with us to tailor these strategies to your specific circumstances.

GST/HST Registry

CRA now has a GST Registry on their website. The GST/HST Registry lets you validate the GST/HST number of a business, which helps to ensure that claims submitted for input tax credits only include GST/HST charged by suppliers who are registered for GST/HST. To get information to validate the GST/HST number of a business, you have to enter in the space provided the business name, the GST/HST number, and the date of the transaction in question. Access the registry.

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