The Canada Revenue Agency has announced the new prescribed annual interest rates for the first quarter of 2025, which will see most rates decrease after remaining largely unchanged for two quarters. They will be in effect from January 1^st, 2025 to March 31^st, 2025.

The rates apply to amounts owed to the CRA and amounts owed by the CRA to individuals and corporations. Rates applying to income tax will be the following:

• On overdue taxes, Canada Pension Plan contributions, and employment insurance premiums: 8 per cent (a decrease from 9 per cent in Q4 2024)
• On corporate taxpayer overpayments: 4 per cent (a decrease from 5 per cent in Q4 2024)
• On non-corporate taxpayer overpayments: 6 per cent (a decrease from 7 per cent in Q4 2024)
• On rates used to calculate taxable benefits for employees and shareholders from interest free and low-interest loans: 4 per cent (a decrease from 5 per cent in Q4 2024)
• On corporate taxpayers’ pertinent loans or indebtedness: 7.78 per cent (a decrease from 8.53 per cent in Q4 2024)

FHSA contribution deadline looms

Most Canadians are aware that they have 60 days from the end of each calendar year to contribute to their Registered Retirement Savings Plan for the previous year, thereby allowing them to glean the ensuing tax deferral benefits. But the deadline for another popular savings plan is approaching—and could easily be missed.

The First-Home Savings Account (FHSA) contribution deadline is December 31^st, 2024. The registered plan allows Canadians to build tax-free savings for a qualifying first home purchase, up to specified limits, by making contributions of as much as $8,000 per year. The lifetime FHSA limit is $40,000. Like the Tax-Free Savings Account (TFSA), unused contribution room can be carried forward into the next calendar year. However, unlike the TFSA, contribution room only begins accruing from the moment you open an FHSA account.

It’s important to note that while those contributions are mostly tax deductible, they must be made before the end of the calendar year to be claimed on your tax return for that year.

As with a TFSA, an FHSA can hold a wide range of qualifying investments such as mutual funds, bonds, securities listed on a designated stock exchange or GICs. If the funds contributed to an FHSA are not used to buy a home, they may be transferred into an RRSP or RRIF tax free. FHSA withdrawals not used for a home purchase are otherwise considered taxable income.

Leveraging year-end tax minimization strategies

The end of the year presents opportunities for tax-loss harvesting. If you’re in a net taxable capital gain position, you may wish to consider realizing capital losses (e.g., on equities or a property) before the end of the year to reduce your taxable income. However, be weary of the superficial and/or suspended loss rules which may apply if you or an affiliated person repurchases an identical property within 30 days before or after the sale.

Another tactic to minimize tax liabilities—and give back to your favourite causes—is to make a ‘gift-in-kind’ of publicly-traded securities with accrued capital gains. Doing so not only entitles you to a charitable tax receipt for the fair market value of the shares, but the accrued capital gain may also be exempt from tax, thus minimizing amounts owing to the CRA.

Time is running out to take advantage of these tax-minimization tactics. Both need to be implemented before the end of the 2024 to glean the tax benefits for that taxation year.

The RH Partners Tax Team

For more information on tax planning and compliance, contact a member of the RH Partners Tax team today.