Smart Tax Moves for Year-End 2024

By Laura Fitzsimons

As the end of 2024 approaches, it’s time for high-net-worth business owners and individuals to focus on tax strategies to optimize their financial position. Year-end planning is essential for managing tax liabilities, preserving wealth, and setting the stage for a prosperous 2025. Here are some actionable steps for you to consider:

1. Your business is your best investment and best tax shelter.

RRSP Contributions: TFSA Contributions: RESP Contributions:

• Those contributing to registered plans are for employees.

• Business owners can use their business and corporate owned life insurance to accomplish the wealth enhancing goals, obtain needed protection and eliminate tax at each stage of lifestyle and legacy. Its time to properly align your structure in a comprehensive “Lifecycle Wealth Plan”.

2. Optimize Charitable Giving

Philanthropy offers both personal fulfillment and tax benefits. Donations made to registered charities before December 31 can generate a charitable tax credit:

• Federal credit starts at 15% and increases to 29% for donations exceeding $200.

• Combine donations with your spouse or carry them forward up to five years to maximize the credit.

• Consider donating publicly traded securities to eliminate capital gains tax, while still receiving a charitable receipt for the full market value.

  
  

3. Manufacture and Harvesting Capital Gain’s and Losses

Living on your investment income is one of the most overlooked strategies that successful business owners have at their disposal. Capital gains on passive assets held in your corporation provide unique opportunities for business owner’s. Thoughtful investment choice’s can make it easier to diversify investments and pay less tax to fund your lifestyle and preserve your legacy.

Offset taxable capital gains by selling investments with unrealized losses before the end of the year:

• Review your investment portfolio to identify opportunities to realize losses.

• Use losses to offset gains from this year or carry them back to the past three years.

• Be mindful of the "superficial loss rule," which disallows losses if you repurchase the same or identical security within 30 days.

4. Income Splitting

High-net-worth families can benefit from income-splitting strategies:

• Corporate Ownership: Often the business can offer two small business deductions for the family.

• Spousal Loans: Loan funds to a lower-income spouse at the Canada Revenue Agency (CRA) prescribed rate (currently 5% as of Q4 2024). Any investment income generated can be taxed at the lower-income spouse’s rate.

• Family Trusts: Distribute income from a family trust which has tax paid assets to beneficiaries in lower tax brackets, minimizing overall family tax liability.

  
  

5. Deferring or Accelerating Income

Depending on your income levels and expected tax rates, consider deferring or accelerating income:

• Defer bonuses or self-employment income to January 2025 to push taxation into the following year.

• If expecting a higher tax bracket next year, accelerate income or capital gains to 2024.

  
  

6. Maximize Deductions

Ensure you’ve claimed all available deductions:

• Carry forward RRSP deduction room from prior years if you have unused space.

• Deduct interest paid on investment loans or tax-preparation fees.

• Consider medical expenses and tuition credits if applicable.

  
  

7. Incorporate Strategies for Business Owners

High-net-worth individuals with incorporated businesses should explore corporate tax strategies:

• Dividend Sprinkling: Pay dividends to family members who are shareholders and in lower tax brackets, subject to tax on split income (TOSI) rules.

• Income Deferral: Retain earnings within the corporation to defer personal taxation.

• Capital Cost Allowance (CCA): Accelerate depreciation on eligible assets purchased before year-end.

8. Plan for Capital Gains Exemptions

If you plan to sell shares of a qualified small business corporation (QSBC) or eligible farm property, consider the lifetime capital gains exemption (LCGE). For 2024, the LCGE is $971,190. For 2025, its proposed to be $1,250,000 if the budget is passed. Proper planning ensures you qualify for this significant tax benefit.

9. Review Corporate-Owned Life Insurance

Corporate-owned life insurance policies can serve as a tax-efficient wealth preservation tool. Year-end is an excellent time to ensure premium payments are up to date and the policy aligns with your estate planning goals.

When properly planned, corporate owned life insurance accomplishes six goals,

•       Business Protection

•       Investment Growth

•       Access to Liquidity

•       Enhanced Retirement Income

•       Estate Planning and Paying Estate Taxes

•       Eliminating Estate Tax When Aligned with Proactive Tax Planning

Closing Thoughts

Proactive year-end tax planning is an essential part of financial management for high-net-worth business owners in Canada. By maximizing the use of their corporations, harvesting capital gains and losses, utilizing income-splitting strategies, and optimizing charitable giving when living and on death, you can reduce your tax burden and protect your wealth.

Remember, the window to implement these strategies closes with the calendar year, so act now to make the most of your financial opportunities. A well-thought-out plan today will set you up for continued success in 2025 and beyond.

This publication contains the opinion of the writer. The information contained herein was obtained from sources believed to be reliable, but no representation or warranty, express or implied, is made by the writer, Mandeville or any other person as to its accuracy, completeness or correctness. This publication is not an offer to sell or a solicitation of an offer to buy any securities. The information in this publication is intended for informational purposes only and is not intended to constitute investment, financial, legal, tax or accounting advice. Many factors unknown to us may affect the applicability of any statement or comment made in this publication to your particular circumstances. Hence, you should not rely on the information in this publication for investment, financial, legal tax or accounting advice. You should consult your financial advisor or other professionals before acting on any information in this communication.