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Personal Finance

Financial year-end: Actions to take before Dec. 31

Follow these tips to save yourself some money next year

Illustration of hands sweeping coins, imposed on a winter backgroundThe pandemic has wrecked chaos on finances for many, so don’t wait until next year to reap the potential tax benefits

The tax-filing deadline may be months away, but there are only a few weeks left to reap all of the potential financial benefits. Due to the pandemic, it’s been a chaotic year for many people, so it’s worth not waiting until next year to take a look at your finances. Here are some deadlines and benefits to keep in mind:


Taxpayers who received the CERB should be aware “they’ll need cash on hand when the time comes to pay their taxes,” says Julie Lacoursière, CPA, CGA, senior manager at the tax department at BJC, one of the 25 largest accounting firms in Québec. Good to know: the Canada Recovery Benefit, which is now available instead the CERB, is also taxable and tax is deducted at source at 10 per cent. So, some tax may still be payable on this benefit if the recipient’s marginal tax rate is higher than 10 per cent.


Business owners who do not pay employment income and sole proprietors who earn direct income from their business are among those who, until March 31, 2021, can apply for CEBA*. The amount of this interest-free loan, which was initially $40,000, has been increased by $20,000 to a maximum of $60,000. If the balance is repaid by Dec. 31, 2022, half of the loan amount would be forgivable.


“Generally, you can contribute to your RRSP during the 60 first days of the following year [i.e. March 1, 2021 for the 2020 tax year], but not if you turned 71 during the year,” says Lacoursière. If you did, explains Bruce Ball, vice-president of taxation for CPA Canada, you should transfer your RRSP to a RRIF or an annuity before December 31 to avoid being taxed on the balance. If you expect additional RRSP room on January 1, 2021 (based on 2020 earned income for example), it may be worthwhile to make an excess contribution in December before you transfer and close your RRSP. The penalty for RRSP over-contributions is one per cent per month for each month you are over the limit but CRA does allow a $2,000 exemption for over-contributions. So, for a December contribution, the penalty will only apply for one month. Also, keep in mind that you won’t be able to deduct an additional contribution based on your 2021 RRSP room until you file your 2021 tax return.

More generally, if 2020 was a low-income year, it may make sense to take money out of your RRSP if a withdrawal in the future will be taxed at a higher rate. If you have TFSA room, the funds can be invested there.


“You can contribute to your spouse’s RRSP, provided they are younger than you and will not turn 71 before the end of the same year,” says Lacoursière.

The practice is not as common as it once was, but it is still effective, provided the amounts you invest remain in your spouse’s RRSP for at least three years. Otherwise, withdrawals are added to your income, not that of your spouse. If you make a contribution this year, make sure you can wait until 2023 before making a withdrawal.


The deadline for contributing to a Registered Education Savings Plan (RESPs) is Dec. 31.

“If you didn’t make your full allowable contribution in previous years, you can catch up, but only one year at a time,” says David Truong, a counsellor at National Bank Private Banking 1859. “Instead of contributing $2,500 per child, you can contribute up to $5,000 and obtain $1,000 rather than $500 in Canada Education Savings Grant (CESG) money.”

Also, notes Troung, if your child turned 15 during the year and doesn’t have an RESP in their name yet, you could start one now to receive the CESG for the years they turn 16 and 17. “The requirements are different for RESPs started after the child has turned 15 and the conditions are more restrictive,” he says. “It’s not always easy to contribute to a RESP at the end of the year, but it’s the best gift you can give your child.”


If you must withdraw from your TFSA and plan to recontribute the money in the future, says Lacoursière, do it in December because the amount taken out will be added to your contribution room for 2021. “If you make a withdrawal next January, you’ll have to wait until 2022 for the amount to be added to your limit.”

Whether it’s better to withdraw needed funds from a TFSA or an RRSP depends on your situation and your tax rate. “If a person’s income was low in 2020, withdrawing from an RRSP may be a better solution,” says Lacoursière.


“Some expenses are eligible for a tax deduction or credit, provided they’re incurred before year end,” says Truong. “These include certain professional membership fees, which are sometimes due in January, tuition fees, investment expenses and political contributions.” The same goes for donations, that you may consider advancing into 2020, although you can defer the deduction for five years.

“You can also claim a non-refundable tax credit if you paid medical expenses exceeding a threshold based on your net income,” says Ball. If you have already incurred expenses in excess of the threshold, it can make sense to advance payments for these, if possible, to maximize their credit.


“Some people may have carried out transactions that generated capital gains this year,” says Lacoursière. “By selling securities that have an accrued loss, they can lower their taxes by offsetting the loss against the gains. The loss can also be carried back and applied to capital gains for 2017 to 2019 taxation years, but you must start by applying it to your capital gains for 2020.” But be careful: for the loss to qualify, you or a person affiliated with you must not buy the same security within 30 days of selling it.

Since it takes two business days to complete stock market transactions, be sure to make them before December 29, 2020. “A capital loss can only be used to offset a capital gain. It cannot be used to reduce other income,” says Lacoursière.

Finally, says Ball, “consider deferring mutual fund purchases until 2021, as some funds—and equity funds in particular—make capital gain distributions once per year in mid December.”


“People often donate the proceeds from the sale of securities to charitable organizations,” says Lacoursière. “Instead, they could gift those securities in-kind directly to the charity and receive a tax credit without being taxed on the capital gain.”


Many people have slightly higher net pay in November and December because they no longer pay certain payroll taxes, such as QPP or CPP, notes Truong. “But those contributions start up again in January, and people end up with less money and more bills if they’ve overspent during the holidays, so they have to be careful in the last months of the year,” he says.


CPA Canada is a respected and influential voice, relaying matters raised by our members to the Canada Revenue Agency and working collaboratively to identify solutions. Be sure to check back regularly for updates.

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*This article was updated on Dec. 17, 2020, to reflect the adjusted deadline of the Canada Emergency Business Account (CEBA).