Consider capital loss planning
With the recent volatility in capital markets, your investment portfolio may have significantly decreased in value. In this situation, investors should review whether it makes sense to trigger capital losses. Deciding whether to sell or continue to hold your investments should be discussed with your financial advisor.
If you do decide to sell and realize capital losses on your investments, you should know that where the capital losses triggered in 2025 exceed capital gains realized in 2025, the resulting net capital loss can be carried back to reduce capital gains that you realized in 2022, 2023, and 2024 to recover taxes previously paid. Alternatively, it can be carried forward to future years.
Where it makes sense to trigger a capital loss in 2025, you will need to keep in mind that tax rules prevent taxpayers from creating a capital loss where the investment is repurchased within 30 days by the taxpayer or an affiliated person, such as your spouse or a corporation you control—commonly referred to as the superficial loss rules. The amount of the loss that you cannot deduct may be added to the tax cost of the new investment you make.
Understand interest deductibility
Where you have borrowed to purchase investments, remember that you can continue to deduct interest on the loan even if that investment is sold for a loss. To maintain full interest deductibility, you must reinvest the proceeds you receive for the loss investment in a new investment if the proceeds are not used to repay your investment loan.
If you haven’t borrowed to invest but have a mortgage on your home, you should consider reorganizing your finances so that you borrow to invest. As you know, your mortgage interest is not deductible because it was not incurred to earn income. It may be possible to pay off your mortgage with a sale of your investments and then borrow to repurchase your investments. The interest on the loan you take out to invest would be deductible. Careful planning is required to ensure a direct linkage between the borrowing and income-earning investment, as well as to make sure that the superficial loss rules would not apply.
Consider RRSP contributions
RRSPs are a powerful tool to save for your retirement, particularly for individuals in the upper income tax brackets. This is because RRSP contributions are deductible and can be used to reduce your taxable income. However, if cash is tight or your income is expected to decline in 2025, then you should consider whether to contribute to your RRSP and how much. Any unused contribution room can be carried forward to future years, giving you the flexibility to contribute more in years when your income will be higher, and the tax deduction will be more valuable.
Remember that if you need to withdraw funds from your RRSP before retirement, the withdrawal will be taxed and the contribution room used for the original contribution will be effectively lost.
Consider a Tax-Free Savings Account
The Tax-Free Savings Account (TFSA) allows you to contribute an amount up to your TFSA contribution room for the year. While contributions to your TFSA are not deductible, any income earned will not be subject to tax.
If cash is needed to meet short-term needs, taking funds from your TFSA is a better option than your RRSP as TFSA withdrawals are tax-free and the amount will be added back to your TFSA contribution room at the beginning of the following year.
Where excess funds are available, you should know that your TFSA contribution room grows each year by the annual TFSA dollar limit, which is $7,000 for 2025, and includes any unused TFSA contribution room from previous years. It is also reduced by any withdrawals made in the previous year. You can also provide funds to your spouse or common-law partner so that they can contribute to their TFSA and any income earned in their TFSA will not be attributed back to you for tax purposes.
Seek tax advice before settling debts
If you settle a commercial debt obligation (basically, a debt where the interest is deductible for tax purposes) for less than its face amount, adverse tax consequences can arise for the debtor. Also, similar problems can arise where debt is transferred to a related party. These tax rules are extensive and complex. Therefore, you should seek specific tax advice before a debt is settled or transferred to avoid unexpected tax issues.
Review your tax instalment obligations
If your total tax liability, less the portion that was withheld at source, is greater than $3,000 for both the current year and either of the two preceding years, you are required to make instalments for the current year. In Quebec where provincial tax is collected by the province, the threshold is $1,800 for both federal and Quebec tax.
However, when paying instalments, it is possible to base your 2025 income tax instalments on an estimate of what your final tax obligation will be for 2025. If the estimate is correct and you pay ¼ of the estimate on or before the 15th day of March, June, September and December, no instalment interest will be charged. It is important to keep in mind that if you pay less than the instalments that the Canada Revenue Agency requires and your final tax obligation is higher than your estimate, instalment interest and penalties can arise.
The information in this publication is current as of April 28, 2025.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.