Year-End Tax Planning in Canada: Smart Strategies to Reduce Your Tax Bill

Every year, as year-end approaches, Canadians have a limited window to reduce taxable income, maximize credits, and improve their overall financial position. Year-end tax planning in Canada is one of the most powerful ways to lower your tax bill, yet many of the best opportunities disappear once the calendar year closes.
With evolving CRA rules, changing interest rates, and tighter audit scrutiny, proactive planning is more important than ever. Whether you’re an employee, investor, self-employed professional, or incorporated business owner, the right year-end tax strategies can help you keep more of what you earn.
Diamond CPA, one of the best accounting firms in Scarborough, Toronto, with decades of work experience, helps individuals, families, and businesses implement CRA-compliant year-end tax planning that reduces taxes today while supporting long-term financial stability.

This guide covers key year-end tax tips in Canada you should review before the end of each tax year.

Why Year-End Tax Planning Matters

Many of the most valuable tax deductions, credits, and planning opportunities are time-sensitive. Once the year ends, those opportunities are gone.
Good year-end tax planning can help you:

  • Reduce taxable income for the current tax year
  • Take advantage of government credits and grants
  • Plan capital gains and losses strategically
  • Avoid unpleasant tax surprises at filing time
  • Start the new year with cleaner books and better cash flow

In short: tax planning happens before tax filing season, not during it.

Tip 1. Maximize Registered Account Contributions

RRSP Contributions
RRSPs remain one of the most effective tools for reducing taxable income in Canada:

  • Contributions reduce your taxable income for the year
  • Investments grow tax-deferred
  • Spousal RRSPs can support income splitting in retirement

Although the RRSP deadline typically extends into the following year, contributing before year-end gives.
Using RRSPs and TFSAs together is a core year-end tax strategy for many Canadians, especially those juggling short-term liquidity with long-term retirement goals.

Tip 2. Use Registered Plans for Children and Dependents

RESP Contributions
RESP contributions made before year-end may qualify for the Canada Education Savings Grant (CESG):

  • 20% government match
  • Up to $500 per child per year (more if catching up)
  • Lifetime CESG maximum of $7,200 per child

Missing a year often means leaving free government money on the table.

RDSP (If Applicable)
For families supporting a person with a disability, Registered Disability Savings Plan (RDSP) contributions before year-end may trigger generous federal grants and bonds. Coordinating RDSP contributions with overall family tax planning is a powerful long-term strategy.

Tip 3. Capital Gains & Tax-Loss Harvesting Before Year-End

If you sold investments during the year and realized capital gains, tax-loss harvesting can help manage your overall tax bill:

  • Selling underperforming investments before year-end can create capital losses
  • Losses can offset current-year gains, be carried back three years, or carried forward indefinitely
  • Superficial loss rules apply (you generally can’t repurchase the same or identical security within 30 days)
  • Trades must be finalized before year-end, not just be placed

This is one of the most effective, and most time-sensitive, year-end tax planning techniques for investors.

Tip 4. Make Charitable Donations before Year-End

Charitable donations made before year-end may qualify for federal and provincial donation tax credits:

  • Federal credit is 15% on the first portion of donations and higher on amounts above that
  • Provincial credits provide additional savings

Advanced strategy: The maximum amount of all donations an individual can claim on his/her tax return each year is 75% of net income. Donations that cannot be claimed in a given tax year can be carried forward for up to five years.

Tip 5. Prepay Deductible Expenses (Self-Employed & Business Owners)

If you’re self-employed or run a business, prepaying certain expenses before year-end can reduce taxable income in the current year.

Common deductible expenses include:

  • Office supplies and equipment
  • Software subscriptions and cloud tools
  • Professional fees (legal, accounting, consulting)
  • Training and continuing education
  • Utilities, phone, and internet

Timing matters: expenses must generally be paid before year-end to count in that year’s tax return.

Tip 6. Salary vs. Dividends: A Key Year-End Decision for Business Owners

If you’re incorporated, deciding how to pay yourself (salary, dividends, or a mix) is one of the most important year-end tax planning decisions.

Salary advantages:

  • Creates RRSP contribution room (earned income)
  • Contributes to CPP/QPP
  • Helps demonstrate stable employment income to lenders (e.g., for mortgages)

Dividend advantages:

  • No payroll remittances (CPP, EI) on the dividend itself
  • More flexibility in timing cash flow

Most incorporated business owner’s benefit from a strategic mix of salary and dividends, tailored to:

  • Corporate profits and retained earnings
  • Personal tax brackets and family income
  • Retirement plans (RRSP, IPP, corporate investments)

Tip 7. Review Tax Credits You Might Miss

Many Canadians overlook valuable credits each year. As part of your year-end review, consider whether you may qualify for:

  • Medical Expense Tax Credit
  • Disability Tax Credit
  • Home Accessibility Tax Credit
  • Canada Training Credit
  • Other provincial or federal credits relevant to your situation

A short review in December (or before fiscal year-end for corporations) can ensure these opportunities aren’t missed when it’s time to file.

Tip 8. Year-End Tax Planning for Self-Employed Canadians

If you’re self-employed, year-end planning is critical to avoid surprises and CRA issues. Key actions include:

  • Reconciling income and expenses
  • Claiming home office deductions correctly
  • Maximizing vehicle and travel expense claims
  • Reviewing GST/HST filings and instalments
  • Setting aside funds for income tax and CPP
  • Considering capital asset purchases to optimize Capital Cost Allowance (CCA)

Clean records are your strongest defense if the CRA ever reviews or audits your return.

Tip 9. Income Splitting Opportunities

Before year-end, explore whether you can legally reduce total family tax through income-splitting strategies, such as:

  • Spousal RRSPs
  • Prescribed-rate spousal loans (properly documented)
  • Reasonable salaries to family members who genuinely work in the business
  • Dividends from a corporation, where the TOSI rules (Tax on Split Income) permit

These strategies must be carefully structured to comply with CRA rules, but when done correctly, they can significantly reduce long-term family tax.

Tip 10. Prepare Now for Next Year’s Tax Planning

Effective tax planning is ongoing, not just a last-minute rush in December. Before and after year-end, consider:

  • Reviewing projected income for the upcoming year
  • Deciding whether to defer or accelerate income or expenses
  • Updating budgets and cash-flow forecasts
  • Evaluating whether incorporation, holding companies, or restructuring might make sense
  • Organizing receipts, digital records, and accounting systems

The earlier you plan, the more options you have to minimize tax and improve financial flexibility.

How Diamond CPA Can Help

Diamond CPA provides personalized year-end tax planning for:

  • Individuals and families
  • Self-employed professionals
  • Corporations and owner-managers

We help you:

  • Reduce taxes legally and efficiently
  • Stay fully CRA-compliant
  • Optimize both short-term tax savings and long-term wealth building
  • Start each new year with clarity, clean books, and confidence
  • Make many key decisions such as: salary vs. dividends, bonuses, capital gains timing, asset purchases, and corporate reorganization, which are far more effective when planned before the year-end rather than after.

Disclaimer:
This article provides general information and is not intended as tax, accounting, or legal advice. Every situation is unique, please consult a qualified professional before making financial decisions.