Top 13 Strategies to Save for the 2020 Tax Year

By David Lush, CFP

2020 will no doubt go down as one of the most monumentally disruptive and headline-intense years on record. Nonetheless, even a global pandemic is no excuse not to get your planning ducks in a row and consider ways to economize on taxes and plan your wealth strategies for the 2020 year end. As we enter the final weeks of 2020, we’ve listed a few helpful strategies that may be useful across various types of taxpayer categories:

1. Tax Loss Selling

2020 was a tumultuous year in global markets, and many investors with holdings in non-registered accounts may still be sitting on unrealized capital loss positions. Tax-loss selling involves selling investments with an accrued capital loss position at year end in order to offset capital gains elsewhere in your portfolio (or just to reduce taxable income in general). In the event that there are not current-year capital gains to offset (or your loss is larger than the current-year capital gains), investors may also carry back losses three years or carry them forward indefinitely to offset capital gains in other years.

  • Let’s illustrate the strategy with an example: Consider an investor with assets in a non-registered portfolio. Imagine that this investor has a portfolio with three securities, Securities A, B and C. Security A was purchased on Jan 1, 2020 and cost $500 plus $10 in fees. Several months later, the investment is doing fantastically, but the investor decides to take some profits and sell the position for $910 in early Feb, 2020. The investor makes no further decisions until much later in the year and realizes that if there are no capital losses to offset this gain, they will have $200 added to their total taxable income for the year. Luckily, the investor has some investments (B and C) with unrealized capital losses of $200 each. Reasoning that Security C is still a good investment with a strong potential to rebound in the years to come, the investor decides to sell Security B (e.g. it has worse prospects) – and realize a $200 capital loss to offset the $200 gain from Security A.
Investment TypePurchase DateSale DateAdjusted Cost Base (e.g. Original Price + fees)Sale PriceCurrent Market ValueUnrealized Capital Gain/LossRealized Capital Gains/Loss**Taxable Gain/loss (50% of realized capital gain are taxable)
Security AJan 1, 2020Feb 1, 2020$510$910  $400$200
Security BJan 1, 2020Dec 1, 2020$910$510  -$400$200
Security CJan 1, 2020Dec 1, 2020$260 $60-$2000 

From the Canada Revenue Agency’s perspective, the taxable gains and losses exactly offset one another and no tax is assessed for these transactions. Moreover, in the event that losses were especially significant in this year – remember that they can be carried back three years to offset gains in prior tax years. Make sure you have documents on hand to prove the adjusted costs basis and sale prices of your securities in order to provide the necessary evidence for your tax loss selling strategy.

In this example, the investment merit and intrinsic value of the underlying security are being considered in tandem with tax strategies – a characteristic of high quality financial planning advice. It is important not to let a single factor influence all of your decision making – sometimes what makes sense from a tax strategy perspective is at odds with an investment rationale, or another plank of your strategy.

  • Be cautious of superficial loss rules! If you are disposing of securities that you ultimately wish to hold for the long term, keep in mind the “superficial” loss rules that apply in the event that you sell a position at a loss and then re-purchase it within 30 days before or after the sale date. Beware of repurchasing securities within this time period through an “affiliated person” entity – for example, your spouse (or partner), a corporation controlled by you or your partner, a trust in which you or your spouse are the majority beneficiary (this includes your RRSP or TFSA). Any such repurchase of securities will result in your capital loss being denied, and the adjusted cost basis of the newly purchased securities being adjusted higher by the same amount as the prior loss position. Ultimately, any benefit of the available capital loss can only be obtained when newly repurchased securities are sold. Using the example above, our investor should re-purchase Security B on or after Jan 1, 2021 (30 days after sale) if they decide that they still want to own that security for the long-term.
  • Clever strategies to stay in the market and avoid superficial loss rules If you are worried about missing out on potential gains while you are waiting to re-buy a security that you have sold, consider purchasing an alternate security that shares similar characteristics to that which was sold. For example, if you sold a bank stock such as Toronto Dominion Bank (TD), or a “Canadian Dividend” style mutual fund, you might consider purchasing another highly correlated Canadian bank stock or Canadian Dividend Fund from another issuer in order to replicate some or most of that prior market exposure. There are no guarantees with this approach of course – past correlations are no guarantee that they will persist, and transaction costs should also be considered.

2. Factor in CERB / CRSB Payments for your 2021 Tax Return

By April 2020, over 5.5 million Canadians had experienced some kind of impact to their income, through either outright job loss, reduced hours or some other type of disruption. The Canadian government’s response – the Canada Emergency Response Benefit (CERB) program resulted in direct transfers to Canadians without any tax being withheld. For the 2020 tax year, these direct payments will be considered taxable, ordinary income, and Canadians who received CERB payments should attempt to estimate their total taxable amount due on these payments and make the funds available for repayment to the CRA in 2021.

The CERB program has since formally ended, with three new benefit programs takings its place: the Canada Recovery Benefit (CRB), the Canada Recovery Sickness Benefit (CRSB) and the Canada Recovery Caregiving Benefit (CRCB). Just as with CERB, these benefits are also taxable, and although some amounts are being withheld at source (10%) – this may not reflect the ultimate tax that is required to be remitted on these amounts.

3. RRSP Contributions

Registered Retirement Savings Plan (RRSP) contributions continue to be a wise strategy for the vast majority of taxpayers looking to benefit from the deferral of current-year income taxes and the tax-free growth of their principal. Although investors have until March 1, 2021 to make RRSP contributions for the current tax year, it is best to maximize time in the market and tax-deferral benefits by making these contributions earlier in the year, rather than later. Dollar cost averaging strategies that use up the 18% of income earned in 2018 (less pension adjustments) via a regular pre-authorized contribution plan can be a good choice – lessening the burden of trying to save up a large lump sum in early March, while lessening the impact of market volatility on the number of units bought over time. For example, many dollar cost averaging investors would have gotten extra bank for their buck in the extremely bearish Feb-April 2020 period when securities were on sale – simply by sticking with their regular, disciplined purchasing strategy.

4. Borrowing to invest in an RRSP

Debt gets a bad rap, and well it (sometimes) should. Incurring debt for consumer purchases is generally to be avoided. On the other hand, debt incurred to generate long-term assets belongs to a different, far more preferable category. Debt incurred to generate long term assets with the added benefits of a tax refund amid a climate of record low interest rates…well that’s even better. Let’s examine the situation for an Alberta resident with a $75,000 income who is considering the choice between taking on an RRSP loan to top up their RRSP by $10,000, or just leaving it until next year. Let’s further imagine that our Alberta resident is generally a “Balanced” long term investor (let’s assume a long-term return of 6%) and can borrow at prevailing low interest rates of 3% (banks & credit unions usually make RRSP loan rates quite low).

 Business as Usual ScenarioRRSP Loan Scenario ($10,000)
Income  $75,000$75,000
RRSP Loan Amount (e.g. $10,000)$0$10,000
RRSP Contribution (e.g. $10,000)$0$10,000
Taxable Income$75,000$65,000
Tax Amount Due (Tax % * Taxable Income)$16,285$14,204
Tax Refund Amount$0$2,081
Loan Interest Cost$0$165
RRSP Investment Return ($10,000 x 6%)$0$600
Net worth gain on a deferred basis$0$2,516

Yes, we realize that this tax refund may “eventually” be taxed – albeit at the generally lower marginal tax rates that prevail in most Canadians retirements. In the meantime, it will have the opportunity to grow tax deferred basis, and this is an extremely valuable benefit. Moreover, the client could take their refund and immediately apply it to the outstanding loan amount, thereby reducing their loan interest costs further (by an additional $36, assuming a 1 year amortization). So, the answer is a resounding, yes.RRSP loans make sense in the vast majority of cases.

5. RRSP contributions and the Homebuyers Plan: a tax efficient source of your first down payment

Imagine we have a hypothetical young Albertan couple that are looking to purchase their first home. They have $50,000 of non-registered savings saved in a high interest account, or maybe a parent or grandparent has gifted them that amount. Either way, the couple has a house in mind, have entered into a “qualifying agreement” to purchase the property and are at-least 90 days away from closing on the sale. The buyers both earn $75,000 and have not been able to maximize their RRSPs over the years, and both have over $25,000 of RRSP room available. They are not expecting any significant pay raises in the years ahead, so the wisdom of deferring that RRSP room in the hopes of larger marginal tax rates in the years ahead is doubtful. Here, we examine the ramifications of using that $50,000 to top up both of their RRSP accounts first before subsequently withdrawing the funds at-least 90 days later under the tax-free Homebuyers Plan (HPB) withdrawal program.

 Business as Usual ScenarioRRSP Contribution & HBP Withdrawal
Income  $75,000$75,000
RRSP Contribution (e.g. $25,000)$0$25000
Taxable Income$75,000$50,000
Tax Amount Due (Tax % * Taxable Income)$16,285$8,660
Tax Refund Amount$0$7,625
Down Payment Amount$25,000$25,000
Net worth gain on a deferred basis$0$7,625
Minimum HBP Payments Required per year for 15 years the second year after the withdrawal year. E.g. a withdrawal in 2020 means repayment must begin in 2022.$0$1,667


It should be mentioned that if money is no object, and they have fully topped up RRSPs and ample down payment in a non-registered format, it is very likely unwise to take advantage of the Homebuyers Plan withdrawal. There is a real opportunity cost to withdrawing $25,000 from a tax shelter, particularly if the amounts are not fully repaid for the full fifteen years. However, if the HBP allows the twin benefits of taking advantage of RRSP room that would otherwise not be utilized, and the use of those same funds for a down payment – the strategy can be very useful. In many such HPB withdrawal scenarios, the tactic creates a welcome, and generously sized tax refund in the first year of home ownership when expenses for new furniture and home improvements are likely to be present – and both buyers here could take advantage of this, for a total refund amount of $15,250.

6. Take advantage of the Canada Training Credit

Delay Paying for Training Costs Until 2021

2020 is the first year in which you may be entitled to claim a new, refundable $250 Canada Training Credit (CTC) to help cover educational and training costs. For the 2020 tax year individuals can claim 50% of eligible tuition and fees up to the CTC account balance of $250 (subject to being a Canadian resident, between the ages of 25-65 and with employment or self-employment income between $10,000 and $147,667).

7. Make RESP contributions and maximize your 20% grants

RESP’s continue to be excellent vehicles to help individuals save for the post-secondary tuition expenses of minor beneficiaries. The federal government provides a Canada Education Savings Grant (CESG) equal to 20% of the first $2,500 of annual RESP contributions per child or $500 annually. While unused CESG room is carried forward to the year the beneficiary turns 17, there are a couple of situations in which it may be beneficial to make an RESP contribution by December 31.

Each beneficiary who has unused CESG carry-forward room can receive up to $1,000 of CESGs annually, with a $7,200 lifetime limit, up to and including the year in which the beneficiary turns 17. If enhanced catch-up contributions of $5,000 (i.e. $2,500 x 2) are made for just over seven years, a maximum total of $7,200 can be obtained from Canada Education Savings Grants. In the event that you have less than seven years before your child or grandchild turns 17 and haven’t maximized RESP contributions, consider making a contribution by December 31, 2020.

Also, if your child or grandchild turned 15 this year and has never been a beneficiary of an RESP, no CESG can be claimed in future years unless at least $2,000 is contributed to an RESP by the end of the year. Consider making your contribution by December 31, 2020 to receive the current year’s CESG and create CESG eligibility for 2021 and 2022.

Maximizing these grants through RESP contributions goes a long way towards defraying future education costs – costs which tend to rise at a faster rate than the generalized inflation rate in Canada (The High Price of Higher Learning, Globe and Mail, Nov 8, 2019). Moreover, in the event that your child or grandchild (and any other siblings) doesn’t attend post-secondary education – the rules require that grant amounts be paid back. Amounts you contributed are returned to you without being taxed, while gains on contributions/grant/bond amounts, or ”accumulated income” are taxed at your regular income tax level, plus an additional 20 percent.

8. Make a TFSA Contribution

The TFSA dollar limit for 2020 stays at the same level as 2019 – $6,000. Canadians who have been eligible to accumulate room since the program started in 2009 would therefore have a total of $69,500 available to shelter after-tax income from tax.

  • The S in TFSA stands for Strategy. Make sure you have one!  As well, don’t be misled by the “S” in TFSA. Although TFSA accounts can hold savings accounts and accrue what counts as “high interest” in the current ultra-low interest rate environment, TFSA accounts (like RRSPs, RRIFs, RDSPs, etc) are generally best thought of as long-term investment vehicles with incredible potential for future growth objectives. TFSA accounts can hold a wide variety of investment vehicles – and all that compounding and growth of your initial principal (more likely to happen with a long term strategy) is always yours to withdraw tax free in the future.
  • TFSA – Withdrawals and Re-contributions? Although TFSA’s allow tax free withdrawals and re-contributions of those same amounts, make sure you stay under your total TFSA contribution room within a single tax year. Don’t make the mistake of completing multiple transactions in a single tax year – and breaching the upper limit on their TFSA limit by accident. For example, investor A who has been eligible for a TFSA since 2009 decided to take advantage of the account in March, 2020 and funds the account with $69,500. Later in the year, in September, they decide to withdraw $69,500. Then, in December, 2020, they re-contribute back the full amount again. Unfortunately, the Canada Revenue Agency (CRA) ignores intra-year withdrawals and considers only total contributions to the TFSA in a single tax year. If the total contributions in a single tax year (ignoring all withdrawals) is greater than that eligible contribution amount – penalties may be levied. To avoid all of this – always ensure that you make total contributions up to, but not more than what is listed as your eligible TFSA contribution room on your prior years tax return summary. If you are planning a TFSA withdrawal in early 2021, consider withdrawing those funds by December 31, 2020 so that you will not have to wait until 2022 to re-contribute that amount.
  • Consider inter-generational wealth transfer to maximize TFSAs. Younger Canadians often struggle to muster together the cash required to maximize their RRSPs and TFSAs. For older, wealthier family members looking to get a head start on the ‘gifting’ aspect of their estate plan, contributions to the TFSAs of the younger set may be a good choice. Parents or grandparents that migrate tax inefficient non-registered investments they don’t need into the hands of children/grandchildren with TFSA room can be a wealth-saving tip from a family tax planning perspective. The caveat is that the benefits of tax-free compounding accrue over the long term and donors should be aware that such contributions become the property of the child/grandchild and could be withdrawn at any time.

A Review of Taxable vs. Tax Deferred (e.g. RRIF/RRSP/TFSA/RESP/RDSP) Growth

The benefits of tax-free compounding are quite significant for most investors. Consider the following example where we have an investor with $27,230 invested in a tax-exposed account (at the 28% marginal tax bracket) vs. a tax-sheltered account. In both scenarios, the investor  earns a consistent 6% return (and in our example here, we are ignoring differences in the treatment of capital gains, interest and eligible/non-eligible dividends for non-registered accounts – we’ll just assuming its all interest income):

 Registered InvestmentTaxable Investment (28% marginal rate assumption)
Annual Rate of Return – 6%  6%6%
Initial year deposit (time = 0)$27,230$27,230
Year 1$28,863$28,406
Year 2$30,595$29,633
Year 3$32,431$30,913
Year 4$34,377$32,249
Year 5$36,439$33,642
Conclusion:34% Growth from original principal23% Growth from original principal

9. Ensure distributions for incorporated business owners don’t fall afoul of new income splitting rules

Major changes to the taxation of private corporations were passed into law in 2018 and continue to impact business owners in 2020. Here, we detail some of these changes and suggest some steps you may wish to take for your incorporated small business by December 31, 2020:

Income Splitting: Discouraging Income Distributions to Non-Involved Family Members

On Jan 1, 2018, the so called “kiddie tax rules,” which are also referred to as the “tax on split income” (TOSI) rules, were expanded. The rules were designed to eliminate the tax benefits of income splitting where the recipient of the income (a related family member such as grandparents, parents, children, brothers, sisters-in-law etc) has not made a sufficient contribution to the family business.

  • Get qualified tax advice prior to paying out dividends. A best practice is always to review the share structure of any private corporations with legal and tax advisors – especially prior to any payout decisions. If multiple shareholders own shares of the same class, corporate law might require you pay the same amount of dividends to all shareholders of the same class of shares. Be especially careful with professional firms related to a  law, medicine or engineering related practice.
  • Ensure family members receiving dividends can prove involvement/ownership in the business. Individuals receiving dividends and distributions should be able to demonstrate active involvement in the business of the corporation. Various guidelines exist to prove this. For example, an emailto show concrete evidence of business activity with the individual), and/or the individual holds a significant amount of equity (with at least 10% of the value) in the corporation. As well, this guideline will generally be met if the shareholder works an average of 20 hours per week in the business (timesheets are not recommended to prove this, a regular payroll/salary arrangement is preferred).
  • Retirement distributions between shareholders and spouses are excluded. TOSI rules are not intended to interfere with these types of distributions.
  • Re-examine any estate freezes completed prior to the new rules. New TOSI rules will likely affect anyone who has done an estate freeze prior to 2018. The TOSI rules would subject dividends paid on most shares received on an estate freeze to the highest marginal tax rate. Gains realized on the disposition of these shares may, however, be exempt from the rules if the lifetime capital gains exemption could be used to shelter such gains ($883,384 in 2020).

10. Passive Investment Income


The tax rate on business income earned in a corporation is generally much lower than the top personal marginal tax rate for an individual who earns business income; consequently, until income is withdrawn from a corporation as a dividend, there is a “tax deferral” in the form of personal taxes that are deferred until a dividend is paid. The deferral benefits for active business income from qualifying small businesses is quite significant – ranging from 32% to 42% in 2020, depending on the province or territory. For active business income (ABI) that is not eligible for the Small Business Deduction (SBD), the 2020 tax deferral ranges from 17.5% to 26.7%, depending on the province or territory. The rules pertaining to active or passive income are really about ensuring that these benefits apply only for operating businesses and are not repurposed to benefit passive investors (investing via holding companies) who would otherwise be facing higher personal marginal tax rates).

  • Consider paying yourself a salary sufficient to maximize RRSPs and TFSAs. In situations where these vehicles have available room to shelter pre-tax and after-tax amounts, respectively, it is generally advisable to move funds from the corporate side to the personal side.
  • See a tax advisor if you are not sure what falls under active or passive income: We recommend that you consult a tax advisor prior to year end to determine how provincial and federal measures may apply in your case.
  • Consider a “buy and hold” strategy to defer gains if nearing the $50,000 AAII threshold in 2020. Also, consider whether an Individual Pension Plan or corporately-owned exempt life insurance may be appropriate if AAII exceeds $50,000, as income earned within these plans will not be treated as adjusted aggregate investment income (AAII).

11. Over age 40 and high income? Consider an IPP

One additional strategy to consider, particularly if you are over the age of 40 and have significant T4 income, is the establishing of an individual pension plan.

  • It’s like a defined benefit pension plan just for you: An IPP is essentially a micro version of a regular defined benefit pension plan. It is established and sponsored by your company and designed to have only a single member (owner + employee) – although there are certain circumstances where other family members who are also employees may be able to join the plan as well.
  • Can be tax deductible to your company: Some of the unique benefits of these plans include corporate income tax deductions and the creation of a customized, structured retirement portfolio. IPPs are just one of many retirement strategies available for entrepreneurs in Calgary – consider talking to one of our advisors about whether such a plan is a good fit for your situation.

12. Make Charitable Donations

Making a charitable donation is not only a great way to make an impact in your community, it is also a method of significantly reducing the personal tax you pay. The final day to make contributions to a registered charity in order to claim the donation tax receipt on your 2020 income tax return is December 31, 2020.

  • Save approximately 50% of your gift amount: Both the federal and provincial governments offer donations tax credits that, in combination, can result in tax savings of around half of the value of your gift in 2020, depending on your province or territory of residence.
  • Convenient, in-kind security donations are (potentially) allowable: As an alternative to a cash donation, you can also donate publicly listed securities in-kind to qualified charities without being subject to tax on the realized capital gain that would apply if you disposed of the asset in sale. You will receive a donation tax receipt equal to the fair market value of the security at the time of the donation, which can help reduce your total taxes payable.
  • Plan in advance and talk to your intended charity first: If you plan on donating securities in-kind, the transfer must take place before year-end. Because of the potential for delays and holiday disruptions during the year-end period, it is important to begin this process well in advance to allow for processing and settlement time – at least five business days is recommended. Also, it doesn’t hurt to double check with your charity of choice to ensure that they are willing and able to accept such in-kind donations.

13. Maximize grants and deferred investing benefits for family members with disabilities with an RDSP

  • Similar to the RESP program: First introduced in 2008, the Registered Disability Savings Plan (RDSP) was modelled after the hugely successful RESP program and have been an important benefit for families with disabled persons. Plans can be opened by Canadian residents who are eligible for the Disability Tax Credit, as well as their parents or other eligible contributors (guardians, etc). Up to $200,000 can be contributed over the life of the plan until the beneficiary turns 59, without an annual contribution limit. RDSP contributions do not create tax deductions, but they do allow the contributed amounts to grow on a tax-deferred basis.
  • Generous grants are available: Federal government assistance in the form of Canada Disability Savings Grants (CDSGs), which are based on contributions made, as well as Canada Disability Savings Bonds (CDSBs) may be deposited directly into the plan up until the year the beneficiary turns 49. The government may contribute up to a maximum of $3,500 CDSG and $1,000 CDSB per year of eligibility, depending on the net income of the beneficiary’s family. Eligible investors may wish to contribute to an RDSP before December 31 to get this year’s assistance. As well, there is a 10-year carry-forward of CDSG and CDSB entitlements – contributions missed in earlier years can be made-up in later years. That said, as with all registered plans – the opportunity costs of missing out on early compounding and accrued gains are permanent. It is always advisable to start a plan and make contributions as early as possible in order to maximize the benefits of accrued tax-free growth.
  • Provisions for shortened life expectancy – grants can be kept: In the event that RDSP holders are faced with shortened life expectancy, certain provisions may be utilized which can allow up to $10,000 annually from their RDSPs to be withdrawn without triggering the repayment of grants and bonds. A special election must be filed with Canada Revenue Agency by December 31, 2020 to make a withdrawal in 2021.

If you are looking for further advice, reach out to us at ClearWater Private Wealth, or email our President David Lush, CFP, directly ([email protected]) and let us guide you through the process. We are here to help and can assist you in maximizing your family’s financial future.