March 2025 LifeSpring Insights

The March 3 RRSP deadline is behind us and with it comes the unofficial starting line of tax season. Next up, filing your tax returns, which are due for most individuals by April 30, 2025 (or June 16, 2025 for most businesses).

With the RRSP deadline, of course, goes the opportunity to lower your taxable income for 2024. But there is good news here: you can still take steps to minimize your tax burden in the future. And while taxes are still top of mind, now is the perfect time to do it.

Here are five simple tax-planning strategies for investors at all stages of life that you can put to work now. And with Canada caught in the midst of a trade war at the moment – one that’s taking up a lot of investment focus – we’ll start with the trade situation.

1. The trade war is a good test of your financial plan (and tax strategy)

Before going any further, if the volatility caused by the current trade situation is causing you any concern, it’s important to get in touch with your advisor. They can help you revise (or create, if you don’t have one) a financial plan that works for your goals, age and risk tolerance – and provide you with the peace of mind you need to move forward.

A sound investment plan starts with diversifying across a range of assets, from real estate to stocks and, within a stock portfolio, across various industries and regions. Most investors know this. But don’t stop there – you’ll also want to make sure your portfolio is tax-efficient. 

A good place to start is with the tax shelters most investors are familiar with: Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs). Putting the right investments in the right savings plan is key to making the most of these tools. You should also consider setting up a First Home Savings Account (FHSA). Not only does an FHSA offer an effective way to save for a down payment on a home (a helpful tool for those just starting out) but it also provides eligible Canadian residents with tax-saving benefits and sheltered growth. 

Do you own income-generating assets, like dividend stocks or term deposits? Consider placing them in your TFSA or RRSP. That’s because interest earned on term deposits is taxed as regular income, and TFSAs and RRSPs shelter that income from tax.

Qualifying dividends from Canadian stocks are eligible for the dividend tax credit, which means investors pay less tax on this income than on interest from term deposits. That’s great if you hold them outside your TFSA or RRSP. But still, if you have contribution room, it makes sense to house dividend stocks inside them.

What about growth stocks, which tend to pay no (or low) dividends? Consider holding these outside an RRSP or TFSA, because capital gains fall under a 50% “inclusion rate” (more on this below) that means only half of your profit is taxable (at the same rate as ordinary income). You can also use losses on these assets to offset gains on others – and you can carry those losses forward indefinitely.

2. Remember that RRSPs are not great for transferring wealth – TFSAs are better

Continuing with TFSAs and RRSPs for a moment, there’s one thing that often gets overlooked about them: what happens to each when you pass away? Being aware of this might help you decide which to favor in your financial plan.

When you pass away, your RRSP transfers to your surviving spouse or partner tax-free . However, when the last survivor passes, the entire balance counts as regular income in their last tax return, filed in the year of their death. That could drive them into a high tax bracket.

With BC’s highest marginal tax bracket being 20.5% for the 2025 tax year, and the top federal tax bracket at 33%, you can get a sense of the tax hit that could happen here.

TFSAs, however, are a better tool for transferring wealth. With these tax shelters, you can name a “successor holder,” namely a surviving spouse or partner, to whom the account passes when you die. They basically take over the plan, and it doesn’t go through the estate, similar to an RRSP.

Otherwise, you can name a beneficiary, and they receive the funds tax free, but any growth from the time of the original holder’s death to when the funds go to the beneficiary would be taxed (although this is likely to be a small amount, given that the lifetime maximum TFSA contribution limit as of 2025 is $102,000). Note too that in this case, the funds bypass the estate and go directly to the beneficiary upon the account holder’s death. 

Your advisor can work with you to build a plan that navigates the various succession rules around RRSPs and TFSAs while keeping your tax liability as low as possible.

3. Controversial capital gains tax changes on hold

Something else you may have heard a lot about in the last year or so is the capital gains tax increase proposed by the federal government. Under the proposal, the “inclusion rate,” or percentage of a capital gain (such as on the sale of a secondary residence or a stock) subject to tax would rise to 66.67% from 50% on capital gains above $250,000 for the year.

This basically means that any gains over and above the inclusion rate would not be taxed – and those under the inclusion rate would be taxed as ordinary income.

However, this change has now been deferred to January 1, 2026 and could even be cancelled outright as a federal election looms in 2025. The new federal Liberal leader Mark Carney and the federal Conservative party have both promised to eliminate the new inclusion rate, so there’s a chance it won’t materialize at all.

We’ll have to wait and see what plays out, but it’s something to bear in mind if you plan to sell an investment or property beyond your principal residence in the next year or so.

4. Take advantage of these important “seniors-only” tax breaks

Something else to consider, especially if you expect you and your spouse to have a wide gap in your income in retirement: a spousal RRSP. Under this plan, the higher income spouse contributes and gets the tax credit, based on their available contribution room. Then, when the RRSP is converted to a registered retirement income fund (RRIF) and money is withdrawn, it’s taxed in the hands of the lower-income spouse.

Similarly, retired couples in Canada have the ability to assign up to 50% of their pension income – not including  benefits from the Canada Pension Plan (CPP) or Old Age Security (OAS) but including RRIF payments – starting the year in which the transferring spouse turns 65, again lowering the overall tax liability. While CPP benefits cannot be split under pension income splitting rules, they can be shared between spouses or common-law partners through a process called CPP Pension Sharing – starting at age 60 – which reallocates the benefits based on each spouse’s contribution history. 

5. Have a lot saved in RRSPs? Consider an early RRIF conversion

The last tip is for those soon to enter or already in retirement. As you likely know,  you have to convert your RRSP to a registered retirement income fund (RRIF) by the end of the calendar year in which you turn 71, and begin withdrawals the following year. You’re required to make minimum withdrawals annually after that, and they get bigger as you age.

But you don’t have to. And if you’ve not yet converted and have a significant amount in your RRSP, it might make sense to start withdrawals earlier.

That’s because RRIF withdrawals are considered taxable income, so starting earlier could spread this out over time and reduce your risk of being pushed into a higher tax bracket (and the clawback of income-tested programs like OAS).

Finally, if you’re 65 years of age or older, you can take advantage of the pension income tax credit, which applies to RRIF payouts  and amounts to 15% of your pension income, to a maximum of $2,000.

Professional advice: a valuable “second set of eyes” when it comes to finances and taxes

To be sure, when it comes to your finances and taxes, there are a lot of moving parts. Each stage of life – whether you’re just starting out, launching a business or near or in retirement – brings its own set of tax questions. One thing you don’t want to do is realize after the fact that you’ve missed a tax break, and paid more than you had to.

This is where a professional advisor comes in. A financial advisor can help build and tailor your financial plan as the years go by and can act as a second set of eyes, helping you build the right strategy for you while keeping you fully aware of the tax implications.

For more complex tax questions and structures, you may need the services of an accountant or specialized tax professional. Your BlueShore Financial advisory team can work with them or help you find a tax professional as need.   Reach out and make an appointment today.