Overview

Let’s kick off 2025 with a look at some important updates that could impact your financial strategies this year.

As we usher in 2025, Canadians face significant shifts in the financial and tax landscape. Today I will delve into the updated contribution limits for Tax-Free Savings Accounts (TFSAs), Registered Retirement Savings Plans (RRSPs), and First Home Savings Accounts (FHSA). I am also going to examine the recent increase in the capital gains tax inclusion rate, and discuss how these changes intersect with Optiml's mission to provide personalized tax and estate optimization.

Updated Contribution Limits for 2025

Tax-Free Savings Account (TFSA) The annual contribution limit remains at $7,000 for 2025, consistent with 2024. This brings the cumulative contribution room to $102,000 for individuals eligible since the TFSA's inception in 2009.

Registered Retirement Savings Plan (RRSP) The maximum contribution limit has increased to $32,490 for 2025, up from $31,560 in 2024. Contributions are capped at 18% of the previous year's earned income, up to the annual maximum, plus any unused contribution room from prior years. Your contribution limit is also reduced by any employer-matching RRSP contributions or contributions to a defined contribution pension plan.

First Home Savings Account (FHSA) Introduced in 2023, the annual contribution limit remains $8,000, with a lifetime contribution room capped at $40,000. For those who opened an account in 2023, the total contribution room is now $24,000 for 2025 (2023, 2024, and 2025 contributions combined). However, a key distinction with the FHSA is that unused contribution room only carries forward for two years. This means that if you didn’t open or use an account in 2023, the $8,000 contribution room from that year is permanently lost, leaving you with only $16,000 of room available for 2024 and 2025.

Not to worry, once opened you have 15 years to use the FHSA towards a down payment on a home. If not used within that timeframe, it can be converted into your RRSP. This gives you ample time to take full advantage of the maximum $40,000 contribution room.

Capital Gains Tax Increase

In June 2024, the Liberal government increased the capital gains inclusion rate from 50% to 66.7% for individuals with annual capital gains exceeding $250,000, and for all gains realized by corporations and most trusts. This change aims to enhance tax fairness and generate revenue for social programs.

Prime Minister Justin Trudeau's recent announcements regarding his pending resignation and the prorogation of Parliament until March 2025 have introduced uncertainty regarding the future of the capital gains tax increase. The Conservative Party, which may form the next government, has historically favored lower taxes, potentially signaling a reversal of the recent increase.

CRA's Position and Optiml's Commitment

Despite the prorogation, the Canada Revenue Agency (CRA) continues to apply the higher inclusion rate. However, without formal legislation, there is ambiguity about the tax's permanence. Optiml remains committed to staying informed about legislative developments and will promptly update our platform to reflect any changes, ensuring users receive accurate and current tax optimization.

Closing Thoughts

Canada's ever-changing financial and political landscape highlights the critical importance of proactive and informed financial planning. The single most powerful step you can take to improve your financial future is to create a plan. While not everyone aspires to amass significant wealth or build a large estate, we all value financial stability, peace of mind, and the freedom to thrive - not just survive - in retirement.

The best time to start planning was yesterday, but the next best time is today. Take the first step, commit to your goals, and let time and consistency work in your favor.

Here’s to a happy new year filled with financial clarity and a prosperous future!