Many thanks to all of the donors and participants at our recent annual Christmas Chess Classics in support of Charity organized in partnership with the Oakville Chess Club. We were able to donate much needed food and supplies to the Compassion Ministry at Hope Bible Church this past weekend. This coming weekend, I will be one of the presenters at an event for Physicians in Ontario taking place in Oakville. If you’re a Physician practicing in Ontario, I encourage you to join us this weekend for some tax and financial planning tips as you prepare for 2026. Enjoy this issue where I share some other key insights. Please remember to share this with everyone in your network:

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1. Home Ownership, Real Estate & Financial Planning for Physicians

If you’re a Physician practicing in Ontario, don’t miss this opportunity to start 2026 on the right foot when it comes to your real estate, tax and financial planning. I will be joining other experts in the industry as we break down the Canadian housing market, answer your key tax and financing questions, and give you the clarity you need to make confident, well-informed decisions going into 2026. Join us this Saturday, December 20, 2025 from 3 PM in Oakville. Get all the details here.

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2. Year-End Tax Planning Tips

If you missed our earlier publication on the 2025 year-end tax planning tips, you can click here to get it. In this publication, we cover many tax tips you can consider implementing before the end of the year and many others you should pay attention to as we move into 2026. Some key highlights include:

• If you’re a senior with 2025 net income in excess of $93,454, you will lose some or all of their old age security pension. You will also begin to lose your age credit if your net income exceeds $45,522.
• Consider triggering capital losses at year-end to offset capital gains. Net capital losses that cannot be used in the current year can be carried back three years or forward indefinitely.
• Are you looking to sell your business? Several tax-efficient options exist. These include the ability to shelter up to $1.25 million in capital gains under the lifetime capital gains exemption.
• Consider restructuring your investment portfolio to convert non-deductible interest into deductible interest.
• If you own a business or rental property, consider making any necessary capital asset purchase by the end of the year to get a full year depreciation.
• If you’re buying a first home on or after March 20, 2025 valued at less than $1.5 million, you may be eligible for a GST rebate.
• And many more…

Get all the details here.

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3. The Principal Residence Exemption: Canada’s Best Tax Break

The Principal Residence Exemption (PRE) is one of Canada’s most powerful tax breaks. It allows you to shield the entire gain on the sale of your home from capital gains tax, provided you meet two key conditions:

1. Ownership: You (or your spouse/common-law partner) owned the property.
2. Occupancy: The property was designated and ordinarily inhabited by you, your spouse, or your child during the period of ownership.

Filing is Mandatory. Even if your entire gain is covered by the PRE and you owe no tax, you must report the sale on your annual tax return (Form T2091, Designation of a Property as a Principal Residence) in the year of the sale.

Failure to report the sale and make the designation on time can result in a significant penalty. The penalty is generally $100 for each month you are late, up to a maximum of $8,000.

Change in Use: The Hidden Tax Trap

If you move out of your home and start renting it out, the Canada Revenue Agency (CRA) treats this as a Change in Use. This means your property has gone from a tax-exempt personal residence to a taxable investment property. This change triggers a deemed disposition (a fictional sale) at fair market value (FMV) on the day you move

out.

The Tax Consequence (and How to Avoid It)

1. The Trigger: When the deemed disposition occurs, you technically realize a capital gain (or loss) from the date you bought the home up to the date you started renting it. However, you can use the Principal Residence Exemption (PRE) to cover the gain accrued up to that point.
2. The New Liability: The property is now a rental. Any future gain from the date you moved out until you actually sell it is taxable as a capital gain.

You can use a special election under Section 45(2) of the Income Tax Act to completely defer the deemed disposition and maintain the PRE for up to four additional years, even while renting the property out. By making this election, you can treat the property as your principal residence for up to four years after moving out, shielding the gain during those years. This is especially useful if you are moving temporarily (e.g., for work or a trial separation).

However, you must not claim a Principal Residence Exemption on any other property during those same years. Also you cannot claim capital cost allowance (CCA or depreciation) on the property while the Section 45(2) election is in effect.

To make this election, you must attach a letter or a statement (or simply note it on your T1 return) to your tax return for the year the rental use begins.

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4. The Power of Two: How Income Splitting Puts Cash Back in Your Pocket

In Canada’s progressive tax system, every dollar of income is taxed at a higher rate once you cross certain thresholds. Income splitting is a legal strategy that moves income from the higher-earning spouse or partner to the lower-earning one, reducing the overall household tax bill.

Key Strategies to Consider:

1. Pension Income Splitting (Retirement): If you are 65 or older and receive eligible pension income (like RRIF withdrawals or registered pension payments), you can elect to transfer up to 50% to your lower-income spouse/partner using Form T1032. This can significantly reduce tax and may help avoid the Old Age Security (OAS) claw back.
2. Spousal RRSP (Working Years): The higher-income spouse contributes to a Spousal RRSP, claiming the immediate tax deduction at their higher marginal rate. When the funds are withdrawn in retirement, they are taxed in the hands of the lower-income spouse.
3. Prescribed Rate Loan (Investments): The higher-income spouse can lend money to the lower-income spouse at the CRA’s prescribed interest rate (which is fixed for the loan’s duration). The borrowing spouse invests the funds and is taxed on all investment income earned above the low prescribed interest rate, avoiding the attribution rules.

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5. Tax Reform for Growth in Canada

CPA Ontario recently published a report recommending significant tax reform to drive economic growth in Canada. The authors believe that our current tax system is a barrier to economic growth - business investment per worker has fallen to half of U.S. levels, productivity has stagnated, and real GDP per capita has barely improved. For so long, Canada has ignored tax reform, largely adopting a piecemeal approach to taxation rather than a comprehensive overhaul since the Royal Commission on Taxation in 1962. The result is a patchwork system ill-equipped for today’s economic challenges.

CPA Ontario’s member survey revealed deep concerns about Canada’s tax competitiveness:

• 88% believe reforming personal and corporate income tax is important.
• 84% say Canada’s income tax system overall is too complex.
• Two-thirds believe the tax system is inhibiting economic growth.
• 82% agree the federal tax system is overly complicated.
• 72% believe federal marginal income tax rates are too high.
• 63% say Ontario’s marginal income tax rates are too high.

With new competitive pressures from the U.S. on tax and trade, and Canada’s productivity challenges deepening, Canada needs a bold, comprehensive rethink of the Income Tax Act to modernize it for simplicity, equity, efficiency, and competitiveness, ensuring tax policy facilitates economic growth.

I love many of the recommendations in this report and I totally agree that Canada is long overdue for tax reform that will drive economic growth in the years ahead. You can read the full report here.