SPECIAL TO THE GLOBE AND MAIL

PUBLISHED NOVEMBER 12, 2025

You’ve probably heard of the classic book How to Win Friends and Influence People by Dale Carnegie. I might just write my own version called How to Lose Friends and Bore People. The idea is simple: If you talk long enough about a certain topic, you’ll never be invited to another party again. And that topic? Tax brackets.

So, at the risk of testing your patience, let’s talk about it anyway – because understanding tax brackets can actually save you thousands. If you play things right, you could put serious money back in your pocket in 2025. The key is to act before year-end. Let me explain.

The concept

Canada uses a progressive tax system. This means that, as your income rises, so does the percentage you pay in taxes. The rate you pay on your last dollar of income is called your marginal tax rate, and it’s a big deal.

Take someone with a taxable income of $50,000. That person sits in the second federal tax bracket and pays 20.5 per cent on their last dollar of regular income. At the very top bracket, the federal rate jumps to 33 per cent.

Of course, there are provincial taxes, too. You can tack on roughly 10 per cent in the lowest bracket and about 18 per cent in the highest, depending on your province and income level.

The goal of tax bracket management is simple: Take steps to control your marginal tax rate by shifting yourself into a better bracket.

The levers

There are three main ways to do this: (1) change the timing of your income, (2) change the type of your income and (3) change the location of your income. Let’s walk through some practical ideas for 2025.

1. Timing of income

If you think you’ll be in a lower tax bracket next year, consider deferring income to 2026. Expecting a year-end bonus? Ask if it can be paid in January instead of December. If you’re self-employed, maybe delay some work and sending a few invoices until the new year.

You can also accelerate deductions when your marginal rate is higher. For example, claiming RRSP or FHSA contributions can make sense this year. But if you expect to be in a higher bracket next year, you could contribute now and save the deduction for later.

The same goes for capital gains and losses. If you’ve got losses to use up, realize some gains this year to offset them. Otherwise, defer gains until 2026 if your tax rate will be the same or lower.

And for those nearing retirement, it could make sense to withdraw a little from your RRSP now. This way, you can reduce your RRSP balance before CPP or OAS benefits kick in and potentially push you into a higher bracket down the road.

2. Type of income

Not all income is created equal. Capital gains and Canadian dividends get better tax treatment than regular income such as salary, self-employment, rental or foreign dividends.

You might want to tilt your non-registered portfolio a little more toward growth-oriented investments – where most of your return comes from capital gains – if that fits your risk tolerance.

Here’s another smart move: donate appreciated securities to charity. You’ll avoid paying capital-gains tax on the growth and get a charitable donation tax credit to offset other income. Just make sure you do it before year-end.

If you have interest-bearing investments, consider shifting them into your spouse’s or a family trust’s hands using a prescribed-rate loan. This can move some income into a lower bracket (see my article from Jan. 16 of this year).

And if you’re a business owner, it’s worth reviewing whether salary or dividends makes more sense for 2025.

3. Location of income

Where your income resides can make a big difference. Is it in your personal hands, inside a corporation, a trust or in a registered plan? Choosing the right location can trim your marginal tax rate.

By contributing to your TFSA, you move earnings into a tax-sheltered account – so that income doesn’t show up on your personal return and can help lower your bracket.

And don’t forget RRSP contributions. In a high-income year, an RRSP deduction can push you into a lower bracket. But don’t overdo it – if you bring your taxable income below $16,129 in 2025, you’ll be wasting deductions because you won’t pay federal tax anyway, thanks to the basic personal amount. You’d be better to save them (RRSP, FHSA or even capital cost allowance deductions) for a future year.

Finally, hold your interest-bearing investments inside registered plans where that income is sheltered. For anything outside a registered plan, try to keep things tax-efficient – like growth-focused investments that generate capital gains. Just make sure your overall asset mix still makes sense for your goals and risk tolerance.