10 Steps to Optimize Your Year-End Tax Planning
By James Parkyn - PWL Capital - Montreal
The final weeks of the year offer us an opportunity to think about how to optimize our tax planning. After several years of strong stock market gains, it’s a good time to consider how to manage capital gains and losses, implement tax-loss selling, donate to charity and manage registered account contributions and withdrawals.
It’s become an annual tradition for us to talk about year-end tax planning in our Capital Topics podcast and this blog. Our advice is based on the tax rules currently in effect. However, the federal budget tabled on November 5 proposes several changes that we will discuss in our next podcast.
Keep in mind the importance of what we call an optimizing mindset. This is very different from simply minimizing your taxes. Think not only about the current tax year, but also about how your assets and income will evolve over the longer term.
Here are 10 steps to follow to optimize your 2026 personal income taxes. (This is a shortened version of the more detailed advice in our podcast.)
Capital gains and losses planning
Capital gains and losses planning is probably one of the biggest areas of concern for our clients when it comes to optimizing their 2026 taxes. We’ve experienced four years of double-digit growth in client portfolios at PWL.
Many clients are now sitting on significant unrealized capital gains. We’ve had discussions with them about rebalancing their portfolios, as we do every year, to bring them back in line with their long-term asset allocation targets.
In many cases, they’ve realized substantial capital gains in their taxable accounts. If they haven’t paid the tax amounts requested by tax authorities, they may need to adjust the amount of their final tax instalments due on December 15 of this year.
Realized capital gains are subject to a 50% inclusion rate in both personal accounts and holding companies. Capital gains realized within Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs) and Registered Education Savings Plans (RESPs) are tax-deferred until the funds are withdrawn.
Capital gains within Tax-Free Savings Accounts (TFSAs) and First Home Savings Accounts (FHSAs) are not taxable.
Review your asset mix
The year-end is a good time to review your portfolio’s asset mix and confirm that it aligns with your long-term strategic asset allocation. Also keep in mind that each asset class generates returns that may be treated differently for tax purposes. If you have investments in taxable accounts, you also need to consider the tax implications of the total income you earn.
Income that is taxed at higher rates is generally best earned within a registered plan, where it can be sheltered from annual taxation.
If you have capital losses carried forward from previous years, consider using those losses to offset any realized capital gains. You can find information about your capital loss carried forward amounts on your latest CRA notice of assessment or through the CRA website. It’s also worth getting your year-to-date 2026 realized capital gains and losses report for your personal taxable accounts.
How to rebalance
Investment decisions should take precedence over tax considerations. It’s generally better to rebalance regularly and take profits along the way than to wait for a market sell-off.
You should generally start by rebalancing in your registered accounts. This is because selling investments that have appreciated will not trigger capital gains tax.
You can also rebalance in your TFSA but be careful not to overweight your account with bonds instead of equities, as that will affect long-term growth.
Rebalancing in a taxable account may trigger capital gains and result in taxes payable.
For investors who need to make their annual RRIF withdrawal before year-end, this is also an opportunity to raise the cash required for that withdrawal as part of the rebalancing exercise.
Investors also need to be aware of year-end capital gains distributions from ETFs and mutual funds. These distributions normally occur in December. If you hold an ETF or mutual fund in a taxable account, you will have to pay tax on any taxable capital gains distributions.
Tax-loss selling
Another important year-end strategy is tax-loss selling. This involves realizing capital losses in your non-registered portfolio and using those losses to offset capital gains realized during the current year or in the previous three years. They can also be carried forward indefinitely.
This strategy can potentially generate a valuable tax refund if you have paid taxes on capital gains in the last three years.
For many high-income earners, donating publicly traded securities with substantial accrued capital gains in kind to a registered charity or foundation is a popular year-end tax-planning strategy. The donor receives a charitable donation receipt for the fair market value of the securities being donated. The capital gain on the donated security is subject to a zero-inclusion rate, eliminating the tax on that capital gain.
Be sure to plan in-kind donations well in advance of year-end to allow enough time for the donation to be completed.
RRSP contributions
The maximum RRSP contribution room for 2026 is $33,810. You can find your RRSP contribution room on your 2025 federal notice of assessment. The maximum RRSP contribution room for 2027 will be $35,390.
If you turn 71 in 2026, you must convert your RRSP into a RRIF by December 31.
TFSAs
Make sure you’re using your TFSA properly. We see many new clients who either don’t have a TFSA or use it simply as a short-term savings account.
Think of your TFSA as a long-term wealth-accumulation vehicle. You can contribute up to $7,000 for 2026 (increasing to $7,500 for 2027). Unused contribution room is carried forward. If you’ve never contributed to a TFSA, you may be eligible to contribute as much as $109,000. Consult the CRA website to confirm your contribution room.
If you plan to withdraw money from your TFSA, consider making that withdrawal before year-end. That way, you’ll be able to recontribute the amount withdrawn as early as January 2027.
If you wait until early 2027 to make your withdrawal, you won’t be able to recontribute those funds until 2028.
But be careful: If you have already withdrawn funds from your TFSA during 2026, you have to wait until next year to recontribute the amount withdrawn, unless you have sufficient unused contribution room.
FHSAs
FHSAs are designed for people saving for their first home. You can contribute up to $8,000 per year to a lifetime maximum of $40,000. Contributions are generally tax-deductible; the funds can grow tax-sheltered for up to 15 years.
If you make a qualifying home purchase within that period, the funds can be withdrawn tax-free.
Seek expert advice to assess the advantages of contributing to an FHSA versus a TFSA or RRSP.
RESP contributions and withdrawals
We covered RESPs in detail in our last blog and podcast. The contribution limit for maximizing grants is $2,500 for the current year. If you haven’t contributed the maximum each year since the beneficiary was born, you can do up to $2,500 of catch-up.
Contributions attract a federal grant of 20% and in Quebec a provincial grant of 10%.
If your child is currently attending a post-secondary institution, carefully review the student’s expected income and tax credits to determine how to withdraw RESP funds in the most tax-efficient way.
Prescribed-rate loan strategies
Prescribed-rate loans to a spouse are an effective income-splitting strategy. They allow capital to be built in the hands of a spouse who is taxed at a lower rate.
The strategy can be worth considering when the CRA’s prescribed rate is relatively low. At the current 3% rate, we don’t believe it’s as attractive.
For those who have implemented spousal loans, the borrowing spouse must pay the interest owing to the lending spouse before the end of January 2027.
Interest deductibility on loans for investing
If you borrow for investment purposes, you can generally deduct the interest, subject to applicable rules.
If you have cash or investments as well as non-deductible interest costs, consider using your cash or investments to pay down that debt, then borrowing again to replace the investments.
This may allow you to deduct the interest on the new borrowing.
Alternative Minimum Tax (AMT)
The AMT is designed to impose a minimum level of tax on taxpayers who claim certain deductions, exemptions or credits that reduce their regular income tax to a relatively low level.
Under the AMT system, a parallel tax calculation is performed. This calculation allows fewer deductions, exemptions and credits than the regular income tax calculation.
For 2026, AMT will apply to taxpayers who generate more than $181,440 in taxable income. AMT is particularly relevant for people who are planning to make large charitable donations or who have realized very substantial capital gains.
Consult your tax advisor well before year-end to determine what strategies may help reduce your exposure to AMT.
Year-end tax instalments
Final tax instalments are due December 15. Once you have a fairly good idea of your total 2026 taxable income, you can assess whether you need to make the final instalment.
If you haven’t paid the amounts requested and you end up owing a significant amount of tax on April 30, you may be subject to interest and penalties.
Old Age Security (OAS)
For retired readers, be aware of the clawback tax on OAS benefits. The income threshold for 2026 is $95,323. You may have to repay part of your OAS at a rate of 15% of your 2026 net income above the threshold.
The entire OAS amount must be repaid if a taxpayer’s net income exceeds $155,320 for those between the ages of 65 and 74, or $161,320 for those aged 75 and older.
Don’t leave tax planning to year-end
A final bonus 11th piece of advice: Don’t leave tax planning to year-end. Optimizing your taxes should be done throughout the year.
Consult your tax and financial advisors to determine what is appropriate for your personal circumstances.
Find more commentary on personal finance and investing, our podcast, past blog posts, eBooks, model portfolios and market statistics on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and our Capital Topics website.