Year-end Tax Considerations
As the end of 2024 approaches (hard to believe!), we thought it would be timely to explore some key tax planning strategies that can benefit your portfolio and enhance after-tax wealth.
Tax-Loss Harvesting
One of the most common year-end strategies is tax-loss selling or harvesting, where investors sell underperforming assets to realize capital losses. These realized losses can offset capital gains earned during the year, reducing overall taxable income. Unused losses can be carried forward indefinitely to offset future gains or carried back up to three years to recoup taxes paid on past gains. We evaluate each client portfolio to assess the potential benefits and suitability of tax-loss selling. Barring any change to investment thesis, we buy the sold securities in the new year.
TFSA Contributions and Withdrawals
The Tax-Free Savings Account (TFSA) is a fantastic tool for nearly every Canadian investor. All growth within the TFSA is earned and withdrawn tax-free. The annual contribution deadline is Dec 31st. As the maximum limit increases, so do the potential benefits. The 2024 annual TFSA contribution limit is $7,000, with the lifetime limit expected to exceed $100,000 next year. If you were planning any TFSA withdrawals in early 2025, it may be worth taking the funds out in 2024 as you will recoup the withdrawn amount in contribution room come Jan 1st, 2025.
FHSA Contributions
The First Home Savings Account (FHSA) 2024 contribution end date is also Dec 31st. If you plan to become a homeowner and are eligible to open an FHSA, consider contributing to the account before year-end. An FHSA allows you to contribute up to $8,000 annually to a lifetime limit of $40,000. It is important to note, unlike an RRSP, you cannot make contributions during the first 60 days of the following year.
Charitable Donations
Making charitable donations before the year-end can provide 2024 tax relief. Donations to registered charities qualify for tax credits that offset taxable income. Additionally, donating appreciated securities directly or “in-kind” to charities can eliminate capital gains taxes on those assets, providing a double tax benefit. The tax credit will depend on the contribution size and your income.
“This means that” we strive to provide best after-tax return for our clients. By employing tactics such as tax-loss selling and maximizing registered accounts, we help our clients reduce their tax liability and enhance after-tax wealth. Should you wish to discuss end of year portfolio management and tax planning, do not hesitate to call.
National Instrument 31-103 requires registered firms to disclose information that a reasonable investor would expect to know, including any material conflicts with the firm or its representatives. Doug Johnson and/or Pathfinder Asset Management Limited are an insider of companies periodically mentioned in this report. Please visit www.paml.ca for full disclosures.
Changes in Leverage. We are increasing the asset ceiling to 2.0 times the market value of equity for Pathfinder International Fund and Pathfinder Conviction Fund to be consistent with Pathfinder Partners’ Fund and Pathfinder Resource Fund.
*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Partners’ Real Return Plus Fund are presented based on the masters series of each fund. The Pathfinder Core: Equity Portfolio and The Pathfinder Core: High Income Portfolio are live accounts. These are actual accounts owned by the Pathfinder Chairman (Equity) and client (High Income) which contain no legacy positions, cash flows or other Pathfinder investment mandates or products. Monthly inception dates for each fund and portfolio are as follows: Pathfinder Core: Equity Portfolio (January 2011), Pathfinder Core: High Income Portfolio (October 2012) Partners’ Fund (April 2011), Partners’ Real Return Plus Fund (April, 2013), and Partners’ Core Plus Fund (November 2014).
Pathfinder Asset Management Limited (PAML) and its affiliates may collectively beneficially own in excess of 10% of one or more classes of the issued and outstanding equity securities mentioned in this newsletter. This publication is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor PAML can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your portfolio manager, who can assess all relevant particulars of any proposed investment or transaction. PAML and the author accept no liability of any kind whatsoever or any damages or losses incurred by you as a result of reliance upon or use of this publication.