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On Tuesday I attended the federal budget lockup. They call it a lockup for a reason: It’s sort of like prison. The moment I arrived and starting reading the 406-page budget document, my eyes glazed over and I asked myself what crime I committed to require my attendance.
Then again, some years, the budget makes any financial geek get excited. This year was not one of them. Still, as we contemplate year-end tax planning for investors, there are some things in this budget that could affect your planning. Here are six year-end tips for investors.
Sell your losers before year-end. If you’ve realized capital gains this year, or in one of the three prior years (2024, 2023 or 2022), consider selling securities that might have dropped in value. If you realize capital losses in 2025 and they can’t be used to offset gains from this year, you can carry back those losses up to three years. This could recover taxes you might have paid in the past. If you still like an investment and have no capital gains to apply the losses against, you might be better to simply hold the securities.
Defer capital gains until the new year. If you own shares that have appreciated in value and you’re thinking of selling them, consider waiting until January to push the taxable capital gain to next year. If you have capital losses to use up, however, or if your income is particularly low in 2025, you might want to realize the gains this year.
Consider investing in flow-through shares. Flow-through shares are special securities that allow Canadian resource companies to “flow through” certain exploration and development expenses to you, the investor, who can claim the expenses – up to the amount you’ve invested in the shares. The 2025 federal budget expanded the list of critical minerals companies that will qualify for the flow-through share program. Since it’s risky to buy and hold these shares, you can enter an arrangement with some promoters who will arrange for a buyer (at a discount to what you paid) to purchase your shares, or for a charity to receive a donation of them. After the tax savings from the deductions, investors can come out ahead financially. Flow-through shares purchased before year-end will provide deductions in 2025.
Transfer capital losses to your spouse. There can be times when you have accrued capital losses, but don’t have capital gains to use up those losses. Does your spouse have capital gains? If so, it’s possible to transfer unrealized capital losses from one spouse to the other. This idea involves three steps: (1) selling your loser investment on the open market, (2) having your spouse buy back the same investment within 30 days of your sale, (3) then having your spouse sell the investment 31 days or later after Step 1. So, you’ll want Step 1 to take place on or before Nov. 27, 2025, for the sale in Step 3 to settle in 2025. See my article dated Nov. 21, 2024, for more.
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Use a corporation for investment properties. If you own real estate that generates income, consider using a corporation to hold the property. This could protect you from liability related to the property. You won’t be entitled to claim the principal residence exemption on real estate held in a corporation, but a rental property won’t qualify even if owned personally. Prior to the 2025 federal budget, holding a property in a corporation could require you to file an Underused Housing Tax (UHT) return, but the budget eliminates this requirement for 2025 and later years. If you already own a property and want to move it into a corporation, be sure to speak to a tax pro first since you’ll want to avoid tax on a transfer.
Consider foreign currency exchange. If you’re thinking of selling a security denominated in another currency, your capital gain or loss on the sale could be different than you think given that the exchange rate in effect when you bought the security is likely different than today’s rate. A stock denominated in U.S. dollars that is selling for less than what you bought it for (in U.S. dollars) may actually give rise to a capital gain (in Canadian dollars) if the U.S. dollar has strengthened relative to the Canadian dollar since you bought it. So, make sure you’re clear on the actual gain or loss you’ll be reporting in Canada. The 2025 federal budget did announce the intention to improve the transparency of cross-border transfer fees, including foreign-exchange costs, because non-transparent pricing is causing consumers to pay more than expected to send their money internationally or convert currencies. Time will tell what any changes will look like.
Tim Cestnick, FCPA, FCA, CPA(IL), CFP, TEP, is an author, and co-founder and CEO of Our Family Office Inc. He can be reached at tim@ourfamilyoffice.ca.