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In this Episode, James Parkyn & François Doyon La Rochelle review year-end tax planning strategies in Capital Market securities.
François Doyon La Rochelle: You’re listening to Capital Topics, episode #93! This is a monthly podcast about passive asset management and financial and tax planning ideas for the long-term investor. Your hosts for this podcast are James Parkyn and me François Doyon La Rochelle, both portfolio managers with PWL Capital. In our podcast today we will review Year-end Tax Planning Strategies for Investors in Capital Market Securities. Enjoy! François Doyon La Rochelle: Well, it’s that time of year again when we discuss year-end tax planning strategies for investors in capital market securities. As our regular listeners know, covering this topic at year-end has become an annual tradition on our podcast. As we record this podcast, we are basing our advice on the tax rules currently in effect. The Federal government will be tabling its 2026 Budget in November. They haven’t announced the date yet. If there are any major changes affecting investors, we will highlight them in our next podcast. All right, James, let’s get into today’s topic: year-end tax planning. Where would you like to start? James Parkyn: Well, François, I want to remind our listeners that when we talk about tax planning, we adopt what we call an optimizing mindset. This is a very different concept from simply minimizing your taxes. By optimizing, we mean that you need to think not only about the current tax year, but also about how your assets will evolve over the longer term. In other words, you need a tax plan that considers both your current and future personal income. François, our regular listeners know that we have often highlighted on this podcast the importance of thinking about your assets in terms of three buckets. The first bucket contains tax-deferred registered accounts, such as RRSPs and RRIFs. Withdrawals from RRSPs and RRIFs are fully taxable at your marginal tax rate. The second bucket contains assets held in investment holding companies. These accounts most often arise when entrepreneurs transfer profits from their operating companies into their holding companies. Withdrawals can take the form of taxable dividends or tax-free dividends paid from the Capital Dividend Account. Taxable dividends can be either eligible or ineligible, and each is taxed at a different rate. Finally, we have the 3rd bucket, which includes TFSAs and personal taxable accounts. TFSA withdrawals have no tax consequences. Personal taxable accounts, however, generate tax slips such as T3s and T5s, and selling investments can result in capital gains or losses. Generally speaking, these accounts offer the greatest flexibility and the lowest tax impact when withdrawing funds. François Doyon La Rochelle: James, this is helpful. We know that this approach works well for our clients. So, James, what should taxpayers be doing to optimize their 2026 personal income taxes? James Parkyn: François, I’ll cover our perennial list of year-end tax-planning strategies for our listeners. Today, we’ll discuss nine topics: François Doyon La Rochelle: All right, James, let’s start with capital gains and losses planning. For our listeners, this is probably one of the biggest areas of concern when it comes to optimizing their 2026 taxes. James Parkyn: I agree, François. As we record this podcast, we have experienced four years of double-digit growth in client portfolios. Our clients who have been with us since 2023 or earlier are now sitting on significant unrealized capital gains. We have 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, we have realized substantial capital gains in their taxable accounts. Our listeners should consider that if they have not paid the tax amounts requested by the tax authorities, they may need to adjust the amount of their final tax instalments due on December 15th of this year. It will also likely impact the instalment amounts requested by the CRA for 2027. François Doyon La Rochelle: Let me remind our listeners that realized capital gains are subject to a 50% inclusion rate in both personal accounts and holding companies. Capital gains realized within RRSPs, RRIFs and RESPs are tax-deferred until the funds are withdrawn. And, of course, capital gains realized within TFSAs and FHSAs are not taxable. James Parkyn: As the end of the year approaches and given how strong Capital Markets returns have been year to date, it is a good time to review your portfolio’s asset mix and confirm that it aligns with your long-term strategic asset allocation. François Doyon La Rochelle: James, listeners are likely to find that their current portfolio asset mix is significantly overweight in stocks following the substantial gains since the market lows of September 2022. Some investors may be reluctant to realize capital gains and pay the resulting taxes. Instead, they may decide to change their long-term asset allocation to match their current portfolio allocation. I would caution our listeners, however, that doing so also changes the risk profile of their portfolios. James Parkyn: I think, François, that is a really important point. Listeners should look at their asset mix in terms of what they hold in their safe bucket, invested in bonds, and what they hold in their more volatile bucket, which includes stocks—Canadian, American, and international—as well as REITs. Your long-term strategic asset allocation should be driven primarily by your tolerance for risk and your capacity to take risk. Each asset class generates returns that may be treated differently for tax purposes. So, 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. This is what we call tax-location planning. François Doyon La Rochelle: Listeners should also make sure that, if they have capital losses carried forward from previous years, they 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. James Parkyn: François, let’s get into the specifics of how to trade strategically to optimize taxable capital gains and losses in your taxable accounts. Listeners will need to know their 2026 capital gains and losses history. Start by obtaining your year-to-date 2026 Realized Capital Gains and Losses Report for your personal taxable accounts. For your holding company, the report should cover the company’s fiscal year. François Doyon La Rochelle: James, as you mentioned earlier, many of our clients are sitting on very large unrealized gains in their portfolios. But I want to remind our listeners that investment decisions must take precedence over tax considerations. James Parkyn: I absolutely agree, François. This brings us back to the construction of your portfolio. It is always important to make sure that your current asset allocation remains aligned with your long-term target allocation. The main purpose of rebalancing is to bring your portfolio back in line with that target. In a rising stock market, if you do not rebalance, equities will gradually represent a larger percentage of your portfolio. As a result, your portfolio will become riskier and more volatile. It is generally better to rebalance regularly and take profits along the way than to wait for a market sell-off. So, François, where should investors start the rebalancing process? François Doyon La Rochelle: Well, James, you should generally start by rebalancing within your registered accounts, because selling investments that have appreciated will not trigger capital gains tax. You can also rebalance within your TFSA, but be careful because you do not want to give up your long-term growth if you overweight your account with bonds instead of equities. By contrast, rebalancing within 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 James Parkyn: Investors also need to be aware of year-end capital gains distributions from ETFs and mutual funds. These distributions normally occur in December. They result from fund managers selling some of their holdings during the year. If you hold an ETF or mutual fund in a taxable account, you will have to pay tax on any taxable capital gains distributions. François Doyon La Rochelle: The important thing to understand about year-end capital gains distributions is that, unlike monthly or quarterly distributions that are paid in cash, capital gains distributions in December are often paid as reinvested distributions. In other words, no cash is necessarily paid to you. If you hold the investment in a non-registered or taxable account, you may still have to pay tax on that distribution, even though you have not received any cash. James Parkyn: Passively managed ETFs and mutual funds generally do not distribute large year-end capital gains. Nevertheless, it is always a good idea to visit your ETF or mutual fund provider’s website in November, when estimates of annual capital gains distributions are typically published. François Doyon La Rochelle: In some cases, if a fund is expected to distribute a large capital gain, it may make sense to sell your position before the distribution. But before doing so, make sure that selling the investment will not trigger an even larger capital gain. Also, if you are implementing a portfolio near year-end, you may want to wait until after the ex-dividend date before purchasing a fund that is expected to make a capital gains distribution. James Parkyn: So, François, what else would you like to share with our listeners about year-end portfolio rebalancing? François Doyon La Rochelle: Well, James, 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. But before making any trades, I would advise our listeners to consider three things: James Parkyn: Our listeners should remember to avoid having a loss considered superficial; you or an affiliated person must not repurchase an identical investment within the 30-day period before or after the sale. Are there any other rebalancing strategies you would like to discuss, François? François Doyon La Rochelle: Yes James. If an investor has already realized substantial capital gains in 2026, it may still be possible to defer additional gains until 2027, provided they are comfortable with the current level of risk in their portfolio. We generally do not recommend deferring gains to another tax year simply for tax purposes, because markets can turn quickly. That said, if you are only a few days away from year-end, you may be able to wait until the new year, provided your portfolio remains appropriately positioned. Now, James, let’s look at the strategy of gifting shares. What should our listeners know if they are considering making a donation before December 31st? James Parkyn: Well, François, 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. However, our listeners also need to be careful if they are planning charitable donations, because these transactions can have implications under the Alternative Minimum Tax rules. François Doyon La Rochelle: This strategy is attractive because the donor receives a charitable donation receipt for the fair market value of the securities being donated. James Parkyn: Yes, we implement this strategy for many of our clients. Taxpayers should plan their in-kind donations well in advance of year-end to allow enough time for the donation to be completed. And, as you mentioned, François, when you donate publicly traded securities or mutual fund units to charity, you receive a donation receipt for the fair market value of the gift. In addition, the capital gain on the donated security is subject to a zero inclusion rate, eliminating the tax on that capital gain. François Doyon La Rochelle: James, that was a great overview of capital gains tax planning. For our second tax-planning topic, let’s turn to RRSPs. James Parkyn: François, the maximum RRSP contribution room for 2026 is $33,810. Listeners can find their RRSP contribution room on their 2025 federal Notice of Assessment. This amount includes any unused contribution room carried forward from previous years. The maximum RRSP contribution room for 2027 will be $35,390 for those listeners who like to make early-bird contributions in January. To reach the maximum 2027 RRSP contribution room of $35,390, you would need earned income of $196,611 in 2026. Some listeners may also want to consider making a spousal RRSP contribution. François Doyon La Rochelle: I would add that if you turn 71 in 2026, you must convert your RRSP into a RRIF by December 31st. But do not forget to make your final RRSP contribution before converting your RRSP. Now, James, what would you like to share about TFSAs? James Parkyn: The first thing I would say is that you need to make sure you are using your TFSA properly. We see many new clients who either do not have a Tax-Free Savings Account or have been using it simply as a short-term savings account. You really need to think of your TFSA as a long-term wealth-accumulation vehicle. So, let’s review the contribution rules. If you have a TFSA, you can contribute up to $7,000 for 2026. If you have never contributed to a TFSA, you may be eligible to contribute as much as $109,000. To confirm your TFSA contribution room, it is best to consult the CRA website. Consider making your contributions before year-end so that your money can start working for you, tax-free, as soon as possible. There is no deadline for making a TFSA contribution, and unused contribution room is carried forward. For some listeners, contributing to a family member’s TFSA may also be an effective tax-planning strategy. You can gift funds to your spouse or adult children so that they can maximize their own TFSA contribution room. François Doyon La Rochelle: On the other hand, if you plan to withdraw money from your TFSA, consider making that withdrawal before year-end. That way, you will be able to recontribute the amount withdrawn as early as January 2027. If you wait until early 2027 to make your withdrawal, you will not be able to recontribute those funds until 2028. However, be careful: if you have already withdrawn funds from your TFSA during 2026, you must wait until next year to recontribute the amount withdrawn, unless you have sufficient unused contribution room. Finally, James, I would add that the CRA has announced the TFSA dollar limit will increase to $7,500 in 2027. For those who plan to contribute, it is best to make the contribution as early as possible in the new year. So James, now that we have covered TFSAs, let’s talk about FHSAs. This program was launched in 2023, so 2026 is the fourth year of contributions for those early adopters. James Parkyn: Francois, I will explain the FHSA contribution rules to our listeners. The First Home Savings Account, or FHSA, is designed for individuals saving to purchase their first home. You can contribute up to $8,000 in a year, to a maximum of $40,000 over your lifetime. Contributions are generally tax-deductible, and 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. Even if you do not make a contribution right away, simply opening an FHSA before December 31st will give you $8,000 of contribution room for 2026. You can use that room either this year or in a future year, subject to the applicable rules. For those who intend to purchase a home, we recommend starting early. François Doyon La Rochelle: The FHSA rules can be complicated. To claim a deduction for a 2026 contribution, the contribution must be made before December 31st. It is best to seek expert advice to assess the relative advantages of contributing to an FHSA compared to a TFSA or an RRSP. Now, let’s talk about Registered Education Savings Plans, or RESPs. James Parkyn: François, as you know, our most recent podcast, Episode #92, covered RESPs in great detail. For today’s discussion, I will only highlight the basics. Listeners who want to learn more can go back and listen to Episode #92. Let’s start with RESP contribution rules. The contribution limit for maximizing grants is $2,500 for the current year. If you have not contributed the maximum every year since the beneficiary was born, you can do up to $2,500 of catch-up. In total, that would represent $5,000 in maximum contributions. Contributions attract a federal grant of 20% and, in Quebec, a provincial grant of 10%. You can contribute to an RESP for a beneficiary child until the year they turn 17. If your beneficiary child is less than seven years away from turning 17 and you have not maximized RESP contributions, consider making a contribution by December 31st. Otherwise, you may not be able to receive the maximum total federal government grant of $7,200. Now, let’s look at RESP withdrawal planning. When it comes to saving for education, many parents focus on contributing to their RESPs but overlook how best to withdraw the funds. If your child is currently attending a post-secondary institution, there may be an opportunity to optimize withdrawals by taking advantage of the student’s personal tax credits, including the basic personal amount and tuition credits. Reviewing the student’s expected income and available credits for 2026 can help you determine how to withdraw RESP funds in the most tax-efficient way. François Doyon La Rochelle: Now, James, what would you recommend to our listeners regarding prescribed rate loan strategies? James Parkyn: Francois, prescribed-rate loans are an effective income-splitting strategy. The current prescribed interest rate is 3%. The prescribed rate in effect when the loan is made is generally fixed for the duration of that loan. The CRA sets the prescribed rate and updates it quarterly. I would only recommend considering this income-splitting strategy when the CRA’s prescribed rate is relatively low. When the prescribed rate was 1% or 2%, we implemented spousal loans to take advantage of the opportunity to build capital in the hands of a spouse who is taxed at a lower rate. At the current 3% rate, we do not believe the strategy is as attractive. I would also remind listeners who have already implemented spousal loans that the borrowing spouse must pay the interest owing to the lending spouse before the end of January 2027. François Doyon La Rochelle: Now James, our next tax-planning topic is interest deductibility: how to make your interest costs tax-deductible. If you have borrowed money, consider whether you can structure your borrowing so that the interest is deductible for tax purposes. James Parkyn: If you borrow for investment purposes, you can generally deduct the interest, subject to the 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. François Doyon La Rochelle: James, I think it would be helpful now to explain the Alternative Minimum Tax rules that were modified in the 2024 tax year. Could you briefly summarize how AMT works? James Parkyn: First, François, the Alternative Minimum Tax, or 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. If the tax calculated under the AMT system is greater than the tax owing under the regular tax system, the difference is the AMT payable for that year. I would like to point out that AMT affects relatively few taxpayers. For 2026, AMT will apply to taxpayers who generate more than $181,440 in taxable income. For investors, AMT is particularly relevant when they are planning to make large charitable donations or when they realize very substantial capital gains that are significantly greater than their other sources of income. François Doyon La Rochelle: If a taxpayer plans to make significant charitable donations, only 50% of the donation tax credit would be allowed when calculating AMT. Secondly, if you make an in-kind donation of publicly listed securities, 30% of the capital gain on those securities will be included when calculating AMT. We recommend that our listeners consult their tax advisors well before year-end to determine what strategies may help reduce their exposure to AMT. So, James, what about tax instalments for 2026? What is your advice for our listeners? James Parkyn: Francois, the big question is: have you made enough quarterly tax instalments in 2026? The final tax instalments are due on December 15th. Now that you have a fairly good idea of your total taxable income for 2026, you can assess whether you need to make the final instalment. A word of caution: if you have not paid the amounts requested and you end up owing a significant amount of tax on April 30th, you may be subject to interest and penalties. It is generally safer to pay the amount requested, unless there have been significant changes in your 2026 income compared with 2025. François Doyon La Rochelle: So James, do you have any other year-end suggestions for our listeners? James Parkyn: Yes, I have a couple of additional suggestions. First, consider paying investment expenses before year-end if you want to claim an eligible tax deduction for 2026. This includes interest paid on money borrowed for investing, as well as investment counselling fees incurred for managing non-registered accounts. Second, for our retired listeners, the dreaded Old Age Security, or OAS, clawback tax is always a major concern. The income threshold for 2026 is $95,323, up from $93,454 in 2025. You need to make sure your income does not exceed the applicable recovery thresholds. Otherwise, you may have to repay part of your OAS at a rate of 15% of your 2026 net income above $95,323. In other words, for every dollar of income above this threshold, you must repay 15 cents of your OAS. 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. This is a means-tested benefit and can also amount to a form of double taxation. Because OAS is an individual benefit, the recovery tax is not based on family income. Instead, it is calculated using the individual’s income. François Doyon La Rochelle: So James, how would you like to conclude today’s podcast? James Parkyn: François, as we have said many times on our podcast, tax planning should be done throughout the year. Do not wait until year-end to optimize your taxes. François Doyon La Rochelle: Indeed, James, and I hope our listeners take that advice to heart. I believe we have covered a lot of ground today, and hopefully our listeners will find this update useful. I would also like to remind our listeners that the comments and advice we share on this podcast are general in nature. Everyone should consult their own tax and financial advisors to determine what is appropriate for their personal circumstances. François Doyon La Rochelle: Thank you, James, for sharing your thoughts and expertise again today. James Parkyn: You are welcome, Francois. François Doyon La Rochelle: That’s it for episode #93 of Capital Topics! Do not forget, if you would like to submit questions or suggestions for the show, please email us at: capitaltopics@pwlcapital.com Also, if you would like our expertise in managing your assets, you can contact us by clicking on the contact us button which is located on the Capital Topics home page and on all our publications. Furthermore, if you like our podcast, please share it when with family and friends and if you have not subscribed to it, please do. Again, thank you for tuning in and please join us for our next episode to be released on November 25th. In the meantime, make sure to consult the Capital Topics website for our latest blog posts. See you soon.
