april is just around the corner

April is just around the corner

Now is the time to contemplate a number of decisions that will affect your income tax return next spring.

November 12th, 2025

You only have a few more weeks to make certain financial decisions to do with the 2025 tax year in order to see a positive impact on your next income tax return. In preparation for the conversation you may want to have with your advisor about this, here are 15 handy reminders.

Four points specifically for entrepreneurs

  1. Your income structure  
    If you own a business, the personal income you draw each year can take two main forms: your salary as an employee, and your dividends as a shareholder. A salary constitutes earned income: it gives you RRSP contribution room and entitlement to public pension plans, and can make you eligible for programs based on employment income. It is also subject to payroll deductions. Dividends, on the other hand, are not subject to payroll deductions, but they might result in you having to pay income tax by instalments in the coming year. So one of your pre-year-end decisions should be to determine the best distribution of your income sources, given your personal situation.

  2. The small business deduction  
    Revenue generated by an active business qualifies for the federal “small business deduction” (SBD) and a similar measure at the provincial level. In practical terms, this means that the portion of your operating earnings under $500,000 is taxed at a much lower rate (between 9% and 12.2%, depending on the province or territory) than the general corporate rate (23% to 31%). If your earnings exceed the SBD business limit, it might be useful to reduce the amount subject to the higher tax rate by making some purchases or expenditures earlier (for example, payment of performance bonuses to your employees or yourself). Note that different business limits and specific conditions may apply depending on the province. For instance, in Quebec, the hours worked are also taken into consideration.

  3. Your passive income 
    Income that your business earns from investments is known as “passive income,” and is taxed at a rate that could exceed 50%, depending on the province or territory. Moreover, this income can affect your company’s eligibility for the SBD (see Point 2). As this graph shows, any passive income above $50,000 a year reduces the amount of operating income eligible for the SBD. Once passive income reaches $150,000, the amount of operating income that can receive the SBD is reduced to zero. So it may be in your interest to limit your company’s investment income – by delaying the sale of certain investments, for example, or by putting more investments on a personal basis.

Graph entitled Effect of passive income on the income threshold for the small business deduction. The horizontal axis represents passive income in dollars, from $0 to $175,000. The vertical axis represents eligible active income in dollars, from $0 to $600,000. When passive income is low, for example $0, a company can take advantage of the small business deduction on the first $500,000 of active income, which will be taxed at a lower rate. As passive income increases, this eligible portion decreases. When passive income reaches $50,000 (emphasized with a box), the eligible active income starts to drop quickly. Once passive income reaches $150,000 the small business deduction is completely eliminated: at that point, all of the active income is taxed at the higher general corporate rate. Visually, the brown section on the left represents the portion taxed at the reduced rate, while the pale grey section on the right illustrates the portion subject to the regular tax rate. The data source is the Government of Canada.

  1. Lifetime capital gains exemption  
    Lastly, some news of interest to entrepreneurs planning to sell their business: when the federal government announced the cancellation of the capital gains inclusion rate increase last April, it did not cancel the increase in the lifetime capital gains exemption (LCGE) on the sale of qualified small business shares. This exemption is still $1,250,000. 

Eleven important points for all individuals

  1. RRSP: no rush  
    You have the first 60 days of 2026 to complete your 2025 contributions to a registered retirement savings plan (RRSP). More specifically, any contribution made during the first 60 days of the year can be applied to either the previous year or the current year. So you still have time to discuss strategy with your advisor.

  2. TFSA: why not now? 
    The tax-free savings account (TFSA) allows you to accumulate tax-sheltered savings and make withdrawals that are completely non-taxable. Withdrawals also free up equivalent contribution room, but only as of the following year. Thus, if you are planning to make a withdrawal soon, it might be a good idea to do so before the end of the year: that way, the equivalent contribution room will be available to you in 2026. If you wait until the new year, it won’t be freed up until 2027.  

  3. RESP: December 31  
    Designed to facilitate saving for a child’s postsecondary education, the registered education savings plan (RESP) doesn’t give rise to a tax deduction, but there are associated grant programs, notably the Canada Education Savings Grant (CESG) and, in Quebec, the Quebec Education Savings Incentive (QESI). You have to make your RESP contributions before December 31 to receive the annual grants for 2025. 

  4. FHSA: December 31  
    The first home savings account (FHSA) is a program created to help first-time home buyers save for a down payment. If you have opted for this type of account, you have until December 31 to make a contribution that can be deducted from your income for 2025. The contribution limit is $8,000 a year, with a lifetime limit of $40,000. As well, you can carry unused contributions forward, but only to a maximum of $8,000. 

  5. HBP: October 1  
    If you are using the Home Buyers’ Plan (HBP) instead – or as well – to put together your down payment and are planning to make your purchase within the next year, be aware that you have until October 1 of the year following your first HBP withdrawal to buy or build a home. To be on the safe side, it might be a good idea to wait until the new year before going ahead. This would give you until October 1, 2027, to get everything done. 

  6. Age 71 this year: December 31  
    If your 71st birthday falls in 2025, you have until December 31 to do two important things. First, make one last contribution to your registered retirement savings plan (RRSP) if you have enough contribution room and, second, close your RRSP and use the assets for an annuity or a registered retirement income fund (RRIF). In the latter case, you would have to start making age-dependent minimum annual withdrawals equal to a percentage of the assets in your RRIF. Note that the same principle applies to a locked-in retirement account (LIRA), which you would have to convert to a life income fund (LIF) before December 31.

Table entitled RRIF mandatory minimum withdrawals, per year. The table shows the percentage of the minimum mandatory withdrawal from a registered retirement income fund (RRIF), based on its market value, for each age of the plan holder or spouse. At age 71, the minimum withdrawal is 5.28%. The percentage increases slightly each year: 5.40% at age 72, 5.82% at age 75, 6.36% at age 78, and 7.71% at age 83. At age 84, the minimum withdrawal is 8.08%, then continues to increase: 8.99% at age 86, 10.21% at age 88, 11.92% at age 90, and 14.49% at age 92. The increase continues after age 93: 16.34% at age 93, 18.79% at age 94. Finally, at age 95 or older, the minimum withdrawal is set at 20% of the RRIF’s value.

  1. Pensioners, keep an eye on the OAS clawback threshold  
    As of age 65, all Canadians become eligible for Old Age Security (OAS) benefits. There is a clawback threshold associated with these benefits, though, set at $93,454 for 2025. This means that your OAS benefits will be reduced by 15% of each dollar of taxable income above this threshold. With income of $151,778 ($157,490 if you are 75 or older), your benefits will be fully clawed back. Keep in mind that benefits from an employer pension plan, public pension plans, RRIFs and LIFs are all included in taxable income. On the other hand, TFSA withdrawals are not, and these can help minimize any amount exceeding the clawback threshold.

  2. Gain by losing  
    A common year-end financial strategy consists of selling investments to realize capital losses for tax purposes. These could be applied against capital gains realized in the same year (first) or the previous three years, or carried forward to a future year – in order to reduce your tax bill. To review all the rules surrounding tax loss selling, talk to your advisor. 

  3. Year-end distributions, or how to make a profit without knowing it  
    The previous strategy could also be useful if you hold mutual fund units in a taxable account. At the end of each year, unitholders are likely to receive distributions consisting of capital gains, dividends and interest income realized by the fund during the year. This represents taxable income for the unitholders, even if they haven’t made any trades or received any cash. Tax loss selling of other investments could offset this income. Moreover, if you’re thinking of buying a mutual fund in the near future, you might want to ensure that it isn’t about to make year-end distributions that will add to your tax burden next spring. 

  4. An opportunity for people in the trades  
    If you are an employed tradesperson and have to provide your own tools, you may be eligible for a tax deduction of $1,000 for the cost of new tools in excess of $1,433. This means that you might find it worthwhile to make your purchases before year-end in order to claim this credit. If you are a teacher or early childhood educator and have purchased eligible teaching supplies, the federal government offers a tax credit for you, too.

  5. A time for generosity  
    Finally, generosity is customary at this time of year, especially when, in the form of charitable donations, it may be rewarded at tax time. If you make a donation in 2025 to a charitable organization that issues official receipts, you can use it to claim a deduction on your next income tax return. At the federal level, the tax credit is 15% for amounts under $200 and 29% for anything over that. Conditions apply. There are also provincial tax credits that can increase the total tax savings associated with a donation. By the way, if you would like to give substantial amounts to charitable causes, why not set up a proper planned giving strategy? Your advisor can suggest various approaches, including donations in the form of securities or life insurance policies. 

These 15 reminders provide just a sample of the financial and tax decisions that you might want to contemplate before 2025 comes to an end. For an in-depth look at the ones most relevant to your own situation, talk to your advisor… well before New Year’s Day!

 

* Mutual funds are offered by group savings representatives at Desjardins Financial Security Investments Inc., a financial services firm.