Last updated: January 08 2025
Evelyn Jacks
Filing a tax return is difficult as the playing field is one of constant change: the tax rules are in flux, particularly in the 2024 tax filing year, with all the uncertainty around the capital gains provisions. But in addition, taxpayers have undergone many financial and life event changes since their last T1 filings, each of which must be identified for each family member. Here’s a primer for new year conversations between advisors and clients that cuts through the noise: what matters is what you keep!
Take the Time for a Thorough Pre-Filing Interview. Don’t make do with the shoebox of receipts alone! Make 2025 the tax season in which you take the time to review life events, financial events and the economic events around which your clients made important decisions that will have a tax consequence. What has changed since the last tax filing? Was there a medical emergency, a disability or death in the family, and increase in debt loads, new investments or divestitures, a retirement, business succession? This will affect this year’s tax return. In short, discuss:
The Tax Math: It can be a slippery slope. Here’s why: it is possible to file a return mathematically correctly, numerous different ways.
But the object of a professional’s work, is to file tax returns for a household unit that results in the very best benefits under the intent, object and spirit of the law. That means that only the correct amount of tax is paid this year and in carry over years, and the correct amount of social benefits, refundable and non-refundable tax credits are claimed.
Prior Filed Errors and Omissions: Uncover errors and omissions from prior filed returns – for each member of the family. Then request adjustments to prior filed returns.
Pay Tax Balances ASAP. Prescribed interest rates charged on balances due to CRA have come down from a high of 10% on outstanding balances starting January 1, 2024. The 2025 first quarter prescribed rates have dropped to 8%, 6% and 4% respectively, but there is still a compelling reason to pay off previous years’ tax debt as soon as possible.
Understand Tax Brackets and Rates. It’s 2025 and that means planning now to keep more after-tax income and preserve capital for the future requires proactive tax planning. This begins with understanding the federal tax brackets and rates, which appear below.
Provincial taxes (based on where you live on December 31 of the tax year) are added on top of this. That’s important for anyone planning a move in 2025. Have a discussion about the tax rates in your province of residence on December 31, 2025. Also remember to discuss deductible moving expenses.
Note that indexing changes tax brackets annually and that can have an effect on how much RRIF income should be generated. Take this into account when discussing the clawback of provisions like the Old Age Security and the Age Amount.
Note that the Basic Personal Amount or “tax free zone” will rise to $16,129 in 2025 for those whose income falls below the 29.32% tax bracket. The BPA phases down to $14,538 as income rises. The object is to earn income to the top of your current tax bracket, and avoid the next one if possible. This can be accomplished by making sure you use all the tax deductions and credits available to your household.
Federal Tax Brackets and Rates
2024 Brackets |
2024 Rates |
2025 Brackets |
2025 Rates |
Up to $15,705 |
0 |
Up to $16,129* |
0 |
$15,706 to $55,867 |
15% |
$16,130 to $57,375 |
15% |
$55,868 to $111,733 |
20.50% |
$15,376 to $114,750 |
20.50% |
$111,734 to $173,205 |
26% |
$114,751 to $177,882 |
26% |
$173,206-$246,752 |
29.32% |
$177,883 to $253,414 |
29.32% |
Over $246,752 |
33% |
Over $253,414 |
33% |
*Note: for taxpayers in the highest tax bracket the basic personal amount is $14,538 for 2025. (this was $14,156 for 2024). For taxpayers in the 29% bracket, the basic personal amount depends on their taxable income. The differential that is reducing as income rises is $1591 in 2025 and $1549 in 2024. The 29.32% rate is due to the personal amount reductions.
The Alternative Minimum Tax. This refundable tax has been around since 1986 but it has been “modernized” by the tax department. It is a parallel calculation to regular taxes but it adds back into the mix legitimate tax deductions and credits claimable under the regular tax calculations. You may be subject to it when income reaches $173,205 in 2024; $177,882 and you have earned capital gains income, claimed tax deductions like the capital gains exemption or claimed tax credits like donations. If regular taxes are more than minimum taxes, you’ll just pay that. But if you are subject to AMT, the consolation is that you can apply what you paid under this provision to reduce regular taxes over the next 7 years.
Stay Clear of Penalties and Interest. Especially for those reporting capital gains over $250,000, this will be a difficult decision, as CRA has indicated that despite the fact the provisions to raise the income inclusion rate to 66 2/3% have not been passed, that tax forms will reflect the calculations as if the changes were law.
Some taxpayers may wish to take a “wait and see” approach, and report as if the rules had not passed. In this case the professional and the client will want to agree to a written waiver that absolves the professional of responsibility for gross negligence penalties for not reporting income and the related interest charges, should the provisions indeed pass into law at a later date.
The Donation Opportunity. Finance Canada has announced that eligible donations made up to February 28, 2025 can be claimed on the 2024 tax return. With proration of parliament, there has been no further advice on whether this announcement will die. We’ll keep you informed if it does. Be sure to join us at the live virtual event – the January 15 CE Summit – when advisors from coast-to-coast will discuss the changes to the tax forms and theory.
Bottom Line: Start tax season conversations now and early. It can pay off handsomely and there is still tax planning to do, especially with the RRSP deadline of March 3, 2025, which can help reduce 2024 taxes and increase social benefits in some cases.