Carry It Forward: A Tax-Planning Reminder

Given our increasing tax burden, tax planning has never been more important. As you plan for year-end, remember that the tax rules allow you to carry forward certain unused credits or deductions. Here are some reminders, along with some tips.

Capital Losses — If you sell investments in a non-registered account for less than the original cost, the capital loss can be used to offset capital gains realized during the year (see page 2). If you don’t have sufficient capital gains, the net capital loss can be carried back three taxation years or carried forward indefinitely to use against net capital gains. Tip: Be aware of the superficial loss rules, which may deny the loss if you or an affiliated person acquires the same security within 30 days before or after the sale and still holds it 30 days after.

RRSP — Both unused RRSP contribution room and deductions can be carried forward. Tip: Contribute by the March 1, 2027, deadline to maximize potential tax-deferred growth. You may defer claiming the deduction to a higher-income year to offset a larger tax bill.

TFSA — Unused TFSA contribution room can be carried forward indefinitely. Tip: Keep good records of TFSA contributions and withdrawals. CRA account information may not reflect current-year transactions, especially early in the year, so relying on the contribution room shown on “My Account” can lead to an overcontribution.

RESP — While the Canada Education Savings Grant (CESG) pays an annual maximum of $500, unused CESG entitlement can be carried forward, allowing up to $1,000 per year ($500 current year + $500 carryforward). Tip: If you missed a prior year contribution, consider an annual contribution of $5,000 to achieve the maximum grant.

First Home Savings Account (FHSA) — FHSA holders can contribute $8,000 annually in participation room. Unused amounts can be carried forward to the following year, but only to a maximum of $8,000 and subject to a lifetime limit of $40,000. Tip: The FHSA generally closes at the end of the year of its 15th anniversary, the year the holder turns 71 or the year after the first qualifying withdrawal. Not contributing the full $8,000 per year from the outset could cause you to miss out on the full lifetime contribution amount and valuable tax- deductible benefits.

Charitable Donations — Eligible donations unused in the current year can be carried forward for up to five tax years. This may be helpful for donations made to U.S. charities, which can typically only be claimed against U.S.-source income earned in the year the credit is claimed. Tip: Donating shares “in kind” to an eligible Canadian charity allows you to receive a donation receipt for their fair market value. If the shares in a non-registered account have appreciated, this strategy can also help eliminate the capital gains tax liability.

Student in the Family? Tuition Tax Credit — Many students don’t use their tuition tax credit to reduce taxes because they have limited income at school. Any remaining amount can be carried forward indefinitely to future years. However, once a student has federal tax payable, they must generally use available carried-forward tuition amounts to reduce that tax before claiming certain other non- refundable credits. Tip: After applying the tuition credit to their own taxes, any remaining current-year amount can be transferred to a spouse/partner, parent or grandparent, to a maximum of $5,000 less the amount used by the student.