Maximizing Your Year-End Financials: Smart Financial Moves for Canadians

As the year comes to a close, it's a great opportunity for Canadians to take a proactive approach to their finances. By strategically leveraging registered accounts and tax optimization opportunities, you can maximize your savings and minimize your tax liabilities. This guide will help you navigate through essential year-end financial strategies, empowering you to enter the new year with confidence and a strong financial footing.

The First Home Savings Account (FHSA) is an excellent investment tool that can help you save for a future down payment. It has the advantage of both the Tax-Free Savings Account (TFSA) where you can withdraw tax-free, and the Registered Retirements Savings Plan (RRSP) where your contributions are tax deductible. 

The FHSA has a yearly contribution cap of $8,000 starting the year it is opened, and a lifetime limit of $40,000. To take advantage of this year’s tax benefits, it's important to contribute to your FHSA on or before the December 31st deadline.

For the quickest processing, you can use our Instant deposit funding method, which ensures your funds are available immediately. This way, you can maximize your contributions and take full advantage of the tax deductions available to you. If you’re doing an online bank transfer, keep in mind that it takes 1-2 business days for funds to be available in your account so ensure you do so well before December 31.

You also have the flexibility to claim the tax deduction in the year of contribution or defer it to a future year when your income is higher.

In addition to tax benefits, you get the benefits of growing your money in the account and withdrawing it tax-free for a first-home purchase.

Ready to start accumulating FHSA contributions? The great news is that you can easily open an FHSA with Questrade for only $250 to start. The contribution room only starts accumulating when you open the account, so it's worth setting one up before the end of the year to start saving early for a future home.

To learn more about the FHSA and its advantages, check this helpful lesson.

If you’re saving for retirement, the Registered Retirement Savings Plan (RRSP) is a great place to start. With an RRSP, you have a contribution limit of 18% of your earned income from the previous year, up to a maximum of $31,560 (2024).

To maximize your tax deductions this season, consider contributing to your RRSP as soon as possible. Early contributions not only provide helpful tax benefits but also allow your investments more time to compound, growing your retirement savings more.

Helpful tip: Depending on your situation, you can contribute to both the RRSP and the FHSA to lower your taxable income.  You can make FHSA contributions before the end of the tax year and still contribute to your RRSP up to 60 days into the following year, applying those contributions to the previous tax year. Doing so can lead to greater tax savings or even a tax refund. 

If you’re married or have a common-law partner, you can consider opening a Spousal RRSP to help with income splitting in retirement. A Spousal RRSP allows a higher-income spouse to earn more deductions by contributing towards their spouse’s contribution room. 

Looking for more guides about the RRSP? Take a look at this helpful lesson.

For those seeking a tax-efficient investment vehicle, the Tax-Free Savings Account (TFSA) stands out as a great option. Unlike regular savings accounts, the TFSA offers the advantage of tax-free growth and withdrawals.

Your TFSA contribution begins accumulating once you turn 18 and increases each year. In 2024, this contribution room went up to $7,000 annually. Therefore, depending on when you were born and if you’ve used a TFSA before, you could have up to $95,000 of contribution room in total. More importantly, if you don’t use all this room at once, you can carry it forward into future years, giving you flexibility in how and when you want to invest.

Helpful tip: Any withdrawals from your TFSA are re-added as a contribution at the start of the following year. So if you plan on withdrawing from your TFSA, it might be more strategic to do so at year-end, as your contribution room will be replenished as soon as the new year begins.

By leveraging the TFSA's tax-free advantages and implementing a well-rounded investment strategy, you'll have the opportunity to grow your money and achieve your financial aspirations without the burden of taxes.

The Registered Education Savings Plan (RESP) is a tax-advantaged investment account that helps families save for their children's post-secondary education. Unlike an RRSP or FHSA, contributions to an RESP are not tax-deductible. 

However, your earnings and growth within the account are tax-sheltered, meaning they won't be taxed while they remain in the plan. This allows your investments to grow faster than they would in a non-registered account. When the funds are withdrawn to pay for educational expenses, they are taxed in the hands of the beneficiary (the student). Since students typically have a low income and are in a lower tax bracket, this may result in little to no tax being paid on the withdrawals.

With an RESP, you can get the Canada Education Savings Grant (CESG), which can add up to $500 (free) money per year for every $2,500 you contribute to the account, with a lifetime maximum of $7,200 CESG grant per child. While there is no annual contribution limit on the RESP, the maximum grant per year is $1,000 (including catch-up contributions from previous years). 

The year-end contribution deadline to the RESP to get the CESG grant this year is December 31. If you haven't maximized RESP contributions in previous years— that’s okay. You can still make “catch-up” contributions.  

For example, if you contribute $5,000 before the end of the year, you could receive a $1,000 CESG grant (if you have not already reached the maximum for the year). There is a maximum lifetime contribution limit of $50,000 per child. This flexibility allows parents to catch up on missed contributions. However, to maximize the CESG grant it may be beneficial to spread contributions out over multiple years.

Effective tax planning is a crucial part of financial planning. Year-end tax strategies can allow you to manage and potentially reduce your tax burden, and possibly even earn you some returns. Here are some key tax-saving opportunities you can take:

Please note: To make the most of your tax planning and take advantage of all available opportunities, ensure you seek guidance from a qualified tax professional.

If you invest in a non-registered (Cash or Margin) account, you may consider learning about tax-loss harvesting before the end of the year. 

Tax-loss harvesting is a helpful tax planning strategy that can help minimize your tax liability during tax season. The premise is simple— by identifying and selling investments that have declined in value, you can generate capital losses for that calendar year. These losses can offset capital gains from more profitable investments you may have realized this year, reducing your taxable income. 

Please note: Tax loss harvesting is a tax planning strategy and is not an investment strategy. If you would like to learn more about tax loss harvesting and how it can help your overall financial plans, please consult with a tax professional.

Charitable donations offer a valuable opportunity for you to support causes you care about while also reducing tax liability. The federal charitable donation tax credit is 15% on the first $200 of donations and 29% on amounts of over $200. If you’re on the highest tax bracket, this can go up to 33% for donations above $200. In addition, provincial tax credits vary, sometimes providing an extra 4-25% credit depending on the province. This means you could potentially receive up to 53% of every dollar you donate back in tax credits.

Another option to consider is donating appreciated securities such as stocks, ETFs, or mutual funds. This allows you to avoid capital gains tax on the appreciation while still receiving a tax receipt for the full market value of the donated assets. It's a win-win scenario— you make an impact on a cause you care about while also maximizing your tax savings.

As the year comes to a close, taking proactive steps can ensure you're well-prepared. Maximizing contributions to registered accounts, optimizing tax strategies, and reviewing your overall financial health can greatly impact your ability to achieve long-term financial goals. Additionally, take advantage of any unused employee benefits before the year ends; these can cover essential services like dental care and therapeutic massages, which can be costly if paid out of pocket. Don’t forget to use your remaining vacation days to recharge and prioritize your well-being.

Remember, it’s never too late to start making smart financial decisions. As the old adage goes, “the best time to plant a tree was 20 years ago. The second best time is now”. Embracing these strategies will set you up for a strong financial start to the new year.

Note: The information in this blog is for educational purposes only and should not be used or construed as financial or investment advice by any individual. Information obtained from third parties is believed to be reliable, but no representations or warranty, expressed or implied, is made by Questrade, Inc., its affiliates or any other person to its accuracy.