Year-end Tax Planning for Individuals

As year-end approaches, taking some time to review your financial affairs may yield significant tax savings. To ensure you leave no stone unturned, here’s a summary of some common year-end tax planning strategies.

Tax loss selling

If you’ve realized capital gains during the year, and you’re holding securities with unrealized losses, we will be looking for opportunities to offset those gains in your portfolio. Please rest assured that we will be diligent in avoiding the superficial loss rules.

Registered withdrawal timing

If you’re nearing retirement and expect to be in a lower marginal tax bracket for 2026 vs. 2027 or beyond, consider making an early withdrawal from your RRSP before year-end. The advantage of doing so is that you could pay less tax overall on the amount withdrawn. Doing so late in the year minimizes the amount of time that the taxes are withheld to the government.

Charitable donations

Making a charitable donation is one of the ways you can significantly reduce the personal income tax you pay. The final day to donate to a registered charity to claim the donation tax receipt on your 2026 income tax return is December 31, 2026.

TFSA Contributions

If you have not yet done so, you can make your TFSA contribution for 2026 (up to $7,000) and catch up on any unused contribution room from 2009-2026 (a total of $109,000).

FHSA Contributions

The deadline to contribute to a First Home Savings Account for deduction against your 2026 income is December 31, 2026. Unlike a TFSA, you only begin accruing FHSA contribution room when the account is open, and you can carry forward up to a maximum of $8,000 of unused FHSA contribution room to use in the following year. If you plan to contribute in 2027, consider opening the account in 2026 to allow additional contribution room in 2027 for a total of $16,000.

RESP Contributions

Consider contributing to an RESP by December 31, 2026, if you haven’t already done so, or haven’t maximized your contributions, in order to take advantage of the government grant as well as the tax-deferred growth within the RESP.

Year-end expenses

Generally, you can deduct or claim a credit for certain expenses you paid in the year on your personal income tax return. Therefore, remember to pay all eligible investment management fees, tuition fees, deductible accounting and legal fees, childcare expenses, spousal support, medical expenses, and any business expenses (if deductible on your personal tax return) by December 31, 2026, if it’s your intention to deduct or claim them on your 2026 tax return.

Market Update

Elevated bond yields and geopolitical tensions have challenged the resilience of markets, but so far neither has been sufficient to durably undermine economic growth and corporate earnings momentum. We discuss the key factors shaping today’s risks and opportunities in more detail below.

Macro Strength Tested

The world economy continues to expand at a reasonable pace despite numerous crosscurrents. In the U.S., a stable labour market and rising household wealth have helped reinforce consumer spending, while AI-related investments have supported business activity. Global economic indicators remain at healthy levels, and data has generally been surprising to the upside, providing a constructive foundation for continued corporate profit growth.

We continue to monitor simmering risks that could weigh on economic momentum and contribute to volatility. Namely, geopolitical developments and the rise in global bond yields. Oil prices remain meaningfully above pre-war levels, and further disruption to commodity flows or energy infrastructure in the Middle East could prolong price pressures. However, we are reasonably encouraged by reports that energy shipments are beginning to normalize, though recent attacks on tankers in the region underscore lingering risks to energy supply.

Higher Bond Yields: Headwind & Opportunities

In our view, higher yields are not necessarily negative in isolation. While the recent uptrend partly reflects greater inflation and monetary policy uncertainty related to an energy shock, it is also a function of a constructive outlook for global growth.

For fixed income investors, rising yields are initially accompanied by lower prices for existing bonds, which has dampened returns recently. However, with a higher starting point for yields today, the forward-looking return outlook for a diversified fixed income portfolio has become more attractive, allowing investors to collect higher coupon payments while also providing more cushion against further increases in yields.

Economically, persistently higher yields can raise borrowing costs for businesses and consumers. This can soften economic momentum on the margin, but the impact varies across economies. The U.S. economy appears relatively well positioned to absorb higher rates given its lower sensitivity to interest-rate fluctuations compared to other major economies. More broadly, higher rates also increase the income households and businesses earn on cash and other interest-bearing assets, which can partially offset the effects of higher borrowing costs.

For equity markets, higher yields can create performance variances across sectors. More rate-sensitive sectors—such as utilities, real estate, consumer staples—have recently underperformed the broader market. A stabilization in bond yields would, in our view, help improve the prospects of these market segments. At the same time, with fixed income markets now offering more attractive return potential, this will likely raise the importance of earnings delivery as a driver of equity market returns in the quarters ahead.

Solid Earnings Fundamentals

While bond yields and interest rates have dominated headlines, we expect market attention to increasingly shift toward the start of Q3 corporate reporting season.

The outlook for earnings growth remains strong. S&P 500 earnings are forecast to increase by more than 20% year-over-year for the third consecutive quarter. While technology companies are expected to remain an outsized contributor, all eleven S&P 500 sectors are projected to deliver profit growth. If realized, this broadening participation in profit expansion could provide additional support for the ongoing equity market uptrend.

The Canadian corporate sector is showing similar strength, with the S&P/TSX Composite also projected to deliver earnings growth exceeding 20% in the third quarter.

Takeaway

While markets can always be surprised by unforeseen developments, most economic indicators continue to support our baseline view that the economy and corporate fundamentals retain positive momentum. We are nevertheless monitoring several potential speed bumps, including signs that higher borrowing costs are beginning to weigh more meaningfully on growth and any disappointments around AI investment or monetization.

Against this backdrop, we believe portfolios should balance participation in a durable expansion cycle with awareness of market concentration. Maintaining exposure to AI-linked companies remains important given their structural growth potential, but this exposure should be complemented by sectors and regions that are less dependent on the AI investment theme. We remain focused on disciplined portfolio management, with an appropriate mix of growth and defensive exposures aligned with long-term objectives.

This commentary is based on information that is believed to be accurate at the time of writing and is subject to change. All opinions and estimates contained in this proposal constitute RBC Dominion Securities Global Limited's judgment as of the date of this proposal, are subject to change without notice and are provided in good faith but without legal responsibility. Interest rates, market conditions and other investment factors are subject to change. Past performance may not be repeated. The information provided is intended only to illustrate certain historical returns and is not intended to reflect future values or returns. RBC DS Global Limited, RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. *Member-Canadian Investor Protection Fund. RBC Dominion Securities Global Limited is licensed by the Financial Services Commission of Barbados, the Securities Commission of The Bahamas and the Cayman Islands Monetary Authority. ® / ™ Trademark(s) of Royal Bank of Canada. Used under license.