Worried about tariffs and their effects? Look at your taxes

The broad-based concern Canadians have about the effect of tariffs, including potential job losses or business failures, is an important trigger for individuals to get their financial affairs in order—sooner rather than later. For many Canadians, minimizing taxes can be the most are the most important, proactive financial step to counteract today’s financial fear factors. Here’s why.

How prepping your taxes can soften the burden of U.S. and retaliatory tariffs

A recent survey by Leger and BDO found that 83% of Canadians are planning to alter their financial plans, including cutting back on spending and reducing debt. But tax is equally important. It’s all about what you can do to control one of the biggest eroders of both income and your capital, and that’s the amount of tax you pay. Remember, what matters is what you keep.

The good news is that you do have some control over the amount of tax you pay on income and wealth. By contrast, little can be done about sales taxes, property taxes, carbon taxes and tariffs—except to control your spending.

When it comes to your income taxes, there are two important things you can do right away, which by default can also help you cope with the worry that comes with the political developments around the globe:

1. Do a thorough financial assessment

For each family member in your household, create and analyze these three financial documents:

1. The personal net worth statement,
2. the tax return
3. and your financial plan.

The first two will need more immediate attention, and financial planning has a long-term strategy process attached to it.

The personal net worth statement

For a snapshot of your current wealth position, create or update your personal net worth statements for each family member. Get a good handle on your tax-efficiency gaps, by optimizing tax-assisted investments that still have contribution room: registered retirement savings plans (RRSPs), tax-free savings accounts (TFSAs), registered education savings plans (RESPs), registered disability savings plans (RDSPs) and first-home savings accounts (FHSAs). For each, you will have to check for limits and if you and your family members qualify to hold these accounts.

Regarding non-financial assets, like real estate, check to see if you are well diversified. And ensure that you and your financial advisor understand tax accounting requirements for real estate and business interests and that you’re audit-proof. (More about advisors below, under Seek professional help.) 

Then, look at your liabilities: your debt. Check if you have any tax-deductible debt and whether you are writing off any applicable interest costs. If not, arrange your affairs to do so. And find out how expensive your debt is. Take a closer look at the interest you are paying on each source and whether, in a lower-interest-rate environment, you can renegotiate costs.

Your tax returns

For a snapshot of your income—before and after tax—update and file each family member’s tax returns. When it comes to your taxes, there are three important strategies:

a) Use tax-assisted accounts to build and shore up both income and wealth

Build an emergency fund as soon as you can to prepare for unexpected financial events, like a job or business loss. The first line of defence is a TFSA for each family member 18 years and older. In 2025, the contribution limit is $7,000 for the year, and the lifetime cumulative maximum is $102,000.

Should you receive a lump sum windfall—an inheritance, for example—or if you want to share wealth or gift money within the family, this account is a good one to use. There is no attribution rule, as the amounts accumulate tax-free. So, parents and grandparents can fund their adult children’s accounts or their spouse’s accounts.

b) Get tax deductions with the FHSA and RRSP

Use the FHSA for qualifying family members for saving to buy a home, and the RRSP to reduce both taxes and net income. The RRSP helps to save for retirement but also to increase or create access to more government benefits, such as the Canada Child Benefit (CCB), the GST/HST credit and the Canadian Dental Care Plan.

c) Hedge against both taxes and inflation with asset diversification

Capital gains have been in the news in the past year because of the controversial, and now postponed, income inclusion rate increase. There’s a window of opportunity in 2025 to generate capital gains should the proposed increases take effect, if they do at all. (Both the prime minister-elect and the opposition leader have said they won’t implement those increases.)

But, remember, there is no tax on capital gains until there is a disposition. Therefore, in most cases, there are sound and perfectly legal strategies to minimize tax erosion on these assets.

For example, you can let the capital gains grow on a tax-deferred basis inside your registered accounts. Therefore, diversifying your assets and the income they produce is important; then planning their disposition to straddle two tax years or to be offset by capital losses harvested before year-end can help.

In the case of non-financial assets (think real estate or a small-business corporation), consider playing into the market cycles. Selling an American property when the Canadian dollar is low can offset local real estate value declines. Using special tax provisions to defer and average taxes downward—reserves, capital gains exemptions and donations strategies, for example—can save many thousands of dollars.

Planning income-splitting opportunities, with pensions or dividends from a small-business corporation, can also be timed over several tax years if required, and effectively average taxes downward.

Prepare your financial plan

Becoming truly wealthy is not really about achieving a certain dollar amount on your net worth statement. There are lots of millionaires walking the street today worried about their finances. People who are truly wealthy are those who can stop worrying about money. How do you stop worrying?

Aside from the preparation of your personal net worth statement and the tax strategies above, consider this: do you have your important legal documents in place? Those are:

1. Your health care directives,
2. your will
3. and your powers of attorney.

By putting these protective documents in place, you’ll think more objectively about your financial planning purposes. That’s one more proactive step you can take to cut down on tariff worries.

Your financial plan may, in fact, include several different plans in one, when you think about what and who you need to protect. For example, you may wish to make plans for education savings, cash flow management, debt management, retirement, business succession, disability, strategic philanthropy and, of course, post-retirement and estate planning.

In almost every case, there are tax strategies that can help you build up your net worth on an orderly, purposeful and entirely achievable basis.

2. Seek professional help

It’s really important not to panic-sell or chase high-risk investments that vary from your tolerance strategies. That’s where the investment in a relationship with a team of the right financial advisors comes into play. That includes a tax accountant, a financial advisor and a legal advisor.

Unfortunately, another recent survey by CIBC and FP Canada found that most Canadians are going it alone. Only 25% are working with a financial advisor. But there is better news on the tax front: about 60% of Canadians use the services of a tax professional to file their tax returns. Tax-efficient income and capital accumulations are a natural part of the tax filing process. Combined with professional financial planning, they improve your odds of adopting an achievable strategy and process for sustainable wealth-building. Yes, it does involve paying fees, but those fees should be the ticket to several benefits: lower taxes over time, more tax credits due to astute investing, lower probate and legal fees after someone dies, and sound support during a tax audit.

In addition, you get to help yourself to a financial education by having a safe haven to ask even your most basic tax or investment questions. Some of those fees might also be tax-deductible.

Should you respond to tariffs?

Yes, and these are straightforward proactive steps you can take. It will help you to protect your family from income and wealth erosion. Plus, they are effective for worry-free wealth building. Purposeful financial planning coupled with strong after-tax optimization also brings high value to the professional fees you pay, by helping you accumulate, grow and preserve your personal and family net worth more rapidly and with peace of mind.

In uncertain tax and economic times, when Canadians wonder what decisions they should be making about their finances, remember what matters is what you keep, after tax. Luckily, it’s the right time of the year to think about this.

Read more about tariff news:

• How much will Trump’s tariffs cost Canada and Canadians?
• Making sense of the Bank of Canada interest rate decision
• Bank of Canada drops its key rate, points toward inflation and tariffs
• Why I’m optimistic about the markets in 2025–tariffs or no

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