As you discuss tax planning with clients in the new year, here are some items to consider.
Tax withheld at source
If a client will be claiming a significant amount of tax deductions or credits in 2026 — including RRSP contributions or child care and medical expenses — they can apply to the Canada Revenue Agency (CRA) for reduced withholding tax on their paycheque to avoid a tax refund later.
“The time value of money is always important,” said Aurèle Courcelles, vice-president of tax and estate planning with IG Wealth Management in Winnipeg.
A client could request to reduce tax deductions at source if, for example, they’ll be making a significant charitable donation using a donor-advised fund. And if the client moves money from a taxable account to a donor-advised fund early in the year, the client creates “a bigger pot of money” to donate, Courcelles said. “The sooner you put it in, the sooner that money starts to grow tax-free.”
Another example is a young client who makes a contribution to a first home savings account. “Getting more money on their paycheque is probably important to them,” Courcelles said.
A heads-up about the request: “There’s an approval process,” Courcelles said, and the request “takes some time to work its way through the system.”
Deadline for prescribed rate loan payments
Clients with prescribed rate loans — typically used as a way to split income — should be reminded that interest payments are due by Jan. 30, said Paul Thorne, director of advanced planning, estate and financial planning services with Sun Life Financial in Dartmouth, N.S. If the 2025 interest isn’t paid by the deadline, investment income earned on the loan is attributed to the lender (typically a spouse) for 2025 and all subsequent years.
The missed payment “basically unwinds the whole strategy,” Courcelles said. For clients who in previous years locked in their loans at low rates of 1% or 2%, “you don’t want to be having to redo a loan with the current 3% prescribed rate,” Thorne said.
A new loan would also require that existing investments first be liquidated, potentially triggering tax.
When making the interest payment this month, “a promissory note … is not good enough,” Thorne said. The interest could be paid by cheque or e-transfer, Courcelles said; what’s key is “you need documentation.”
‘Permanent’ increase to U.S. estate tax exemption
With the Trump administration’s One Big Beautiful Bill Act, the U.S. estate tax exemption “permanently” increased to US$15 million per person (US$30 million for married couples) as of Jan. 1 and is “permanent,” with future indexing for inflation.
While no tax-related legislation can actually be considered permanent, the increased exemption provides some near-term certainty for wealthy Canadians (living in Canada) with assets located in the U.S. such as U.S. real estate and stocks in U.S. corporations, who can be subject to U.S. estate tax.
In recent years, the U.S. estate tax exemption has been roughly US$13 million–US$14 million per person but was scheduled to sunset after 2025 and revert to between US$5 million and US$6 million per person, indexed for inflation.
“Given U.S. estate tax rates of up to 40%, that potential reduction created real uncertainty for Canadians who owned U.S. real estate or U.S. securities, often driving defensive planning or outright avoidance of U.S. assets,” said Carson Hamill, an associate portfolio manager with Snowbirds Wealth Management, Raymond James Ltd., in Coquitlam, B.C.
Now, with the US$15-million-per-person exemption in place, “the majority of our clients won’t exceed that,” Hamill said. “Therefore, they can breathe, and we can plan pretty easily.” Advisors can also “evaluate U.S. investments on their merits rather than excluding them for estate-tax reasons.”
Planning has shifted to Canadian capital gains tax at death, liquidity planning and coordinating Canadian and U.S. wills, probate and compliance, Hamill said.
“Very large estates with U.S. holdings above the exemption still require proactive planning, but for most clients the risk has been materially reduced,” he said.
For individuals subject to U.S. estate and gift tax — U.S. citizens or individuals domiciled in the U.S. — the same US$15-million exemption applies to lifetime gifts. Such people “can consider lifetime gifting strategies — such as transferring U.S. real estate or securities to children — without triggering U.S. gift tax, provided total gifts remain within the exemption,” Hamill said. (The annual U.S. gift tax exclusion, which is US$19,000 per person for 2026, allows smaller gifts without using the US$15-million-per-person lifetime exemption room.)
One-percentage-point tax cut
For 2026, the Liberals’ one-percentage-point tax cut to the first federal tax bracket (income up to $58,523) reduces the first marginal personal income tax rate to 14%. (The cut was applicable on July 1, 2025, so for 2025 it reduced the first marginal personal income tax rate by one-half percentage point — to 14.5% from 15%.)
The new top-up tax credit maintains the 15% rate for non-refundable tax credits in the rare case of a taxpayer claiming credits on amounts in excess of the lowest bracket. The taxpayer could have a one-time significant medical expense, for example. The top-up tax credit is applicable for the 2025–2030 tax years.
“The majority of people will not get that top-up credit,” Courcelles said. “Instead of you calculating your credits at 15%, you’re calculating them at 14%.”
Savings from the tax cut are further offset because the cut isn’t applicable on the lowest tax bracket in full, given the basic personal amount. Also, “because we’re into the new year, your CPP [or QPP] contribution will go up, [and] your EI contribution will go up” (based on earnings), Courcelles said. “If you’re the average person looking at their paycheque, … how different will it be now versus what it was last year?”
An analysis by the C.D. Howe Institute last year found that tax filers would save $180 per year on average. And the Parliamentary Budget Officer said taxpayers subject to alternative minimum tax would pay an average of $127 more in federal income tax in 2026.
New tax credit for personal support workers
The temporary refundable personal support workers tax credit, available in certain provinces for the 2026–2030 tax years, equals 5% of eligible earnings up to a maximum of $1,100 per year. (The credit isn’t available in British Columbia, Newfoundland and Labrador, and the Northwest Territories, given existing bilateral agreements between these jurisdictions and the federal government to increase wages for personal support workers.)
“If you have income of $22,000 in a year from personal support work services, you can max out that credit and save $1,100,” Thorne said.
CRA interest on overdue tax
During tax-filing season, “make sure you file on time [and] pay on time,” Courcelles said. If you’re late and owe tax, “there are penalties and then there’s interest.”
The late-filing penalty is 5% of any balance owing, plus an additional 1% for each full month the taxpayer files after the due date, to a maximum of 12 months.
Through the first quarter of 2026, the CRA will charge 7% interest on overdue tax balances, the same as in the previous two quarters. (The rate, which is based on the prescribed rate, can change every quarter.)
A taxpayer who can’t pay their taxes right away can arrange a payment schedule.
Bare trust reporting
As the year progresses, Thorne said he’ll be watching developments related to bare trust reporting. While bare trusts have so far been exempt from expanded trust reporting rules, which were effective for the 2023 tax year, the CRA has said certain bare trusts will have to file for the 2026 tax year.
The bare trust reporting rules “could potentially catch a lot of people off guard,” Thorne said. While there are exceptions to the rules, they’re not “necessarily going to cover everybody.”