2025 January Update

“The best laid schemes o’ mice an’ men gang aft a-gley” (often go awry) ~ Robert Burns

It’s not often we find ourselves quoting Scotland’s beloved poet, but how convenient it is that we’re able to do so ahead of the 265th anniversary of his birth on January 25th. Robbie was right: plans are going awry all over the place.

We like to remind ourselves and our readers that there are only a few things that are within our control, and we should concentrate on those. It’s so true! But, goodness, it’s frustrating when the things outside of our control like to come at us all at once.

At Spring, we completed our plan for this year’s newsletter in late December, and planned to discuss the availability heuristic, a concept in behavioural science that describes our tendency to use information that comes to mind quickly and easily when making decisions about the future. This tendency often puts us in the situation of imagining that what happened recently will happen again.

All this month’s newsletter can say in regard to that heuristic is: Guess what? The one thing that has happened recently is significant change – and to be honest, the availability heuristic is right about that one.

At the time we’re writing this, in the first week of January, so much has changed, and more is likely to come. Here are a few highlights:

Canada’s Parliament Prorogued

Along with the announcement that Prime Minister Justin Trudeau will be stepping down and the Federal Liberal Party will look to elect a new leader came the announcement that Parliament is prorogued until March 24.

Bills that have not received Royal Assent before prorogation are “entirely terminated” according to the House of Commons Procedure and Practice, though the National Post doesn’t entirely agree.

Key tax legislation that have not yet received Royal Assent include:

• Changes to the capital gains inclusion rate
• Extension of the capital gains tax deduction deadline for the 2024 income tax year

Since it often takes a really long time to pass legislation, the Canada Revenue Agency (CRA) has an administrative policy to ask taxpayers to file on the basis of proposed legislation. Interestingly, CRA’s audit manual instructs the following:

“If the proposed legislation is not beneficial to a taxpayer, the CRA cannot require them to file on the basis of proposed legislation. In such cases, inform the taxpayer that they are responsible to apply the legislation according to the enacted legislation after royal assent, and that they may be subject to interest on amounts owing.”

So, does that mean that the CRA will require that your 2024 income tax filing include the proposed legislation … or not? A January 7 announcement from CRA advised:

“Although these proposed changes are subject to parliamentary approval, consistent with standard practice, the CRA is administering the changes to the capital gains inclusion rate effective June 25, 2024, based on the proposals included in the NWMM tabled September 24, 2024.”

If the proposed legislation does not pass, then those who paid higher income taxes on their capital gains in 2024 would have to refile to ask for a refund, and those who submitted receipts for charitable donations made during the extension period would be reassessed and may end up with income tax owing.

It’s not been easy to be an accountant managing through constant change since about 2018 and it looks like this tax season won’t be any easier. Regardless of what unfolds with tax legislation, we highly recommend that you submit your paperwork as early as possible, perhaps with a kind note and some chocolate.

What to expect? Change. You may have to refile your income taxes. You may get a reassessment. At the time we’re writing this newsletter, we don’t know for certain.

Social Security & WEP Legislation

If you have paid into the U.S.’s Social Security system and Canada’s Canada Pension Plan, you likely were aware of the Windfall Elimination Provision (WEP) and possibly the Government Pension Offset (GPO). These two acronyms reduced the amount of Social Security income you would receive, if you also received CPP.

The Social Security Fairness Act, eliminating both provisions, was passed by Senate in December and signed into legislation on January 5. As of January 6, the Social Security Administration has acknowledged the enactment, and stated that they’re “evaluating” how to enact it.

The law provides retroactive benefits for 2024 and permanent increases as of 2025. Given that many government organizations can move pretty slowly, we’re not counting on a change in payments just yet. If you are expecting retroactive payments and a change going forward, remember that this will impact your tax returns… whenever it is you end up receiving the income.

The estimated cost of this legislative change is $196 billion USD over the next decade. Given that Social Security trust funds were projected to be exhausted by 2035 based on a May 2024 report, we can expect that this potential exhaustion is going to be accelerated, unless there are reforms such as increases to payroll deductions, or changes to the benefit formula. Note that, without the trust fund, the program is expected to cover roughly 80% of expected benefits – it’s not going entirely out of business.

If you’re already receiving Social Security, please hang on until we start to see the changes enacted. If you’re expecting to receive Social Security in the future, and we have already completed the WEP calculation for your plan, you can expect more from the program than we had calculated, provided that some kind of reform is enacted before the trust funds run out.

What to expect? Change. Your Social Security income might be higher than expected – for now. It may be lower than expected – in the future. At the time we’re writing this newsletter, we don’t know for certain.

A little bit of certainty…

Amidst all the change, we know a few things are certain. Hopefully these static, boring numbers mitigate the frustration just a little bit:

• 2025 TFSA Contribution Amount: $7,000. If you haven’t made any contributions and have been a resident since 2009, then you can contribute up to $102,000 to your TFSA
• 2025 RRSP Contribution Maximum: $32,490. If your “earned income” was $184,000 or higher in 2024, you’ve earned $32,490 in contribution room for 2025. If your earned income was below this amount, multiply it by 18% to estimate your contribution limit. If you’ve got unused contribution room, that carries forward and can be used in 2025 and future years.
• 2025 Yearly Maximum Pensionable Earnings (YMPE): $71,300. This is used to determine the first level of CPP contributions for those earning employment and self-employment income.
• 2025 Yearly Additional Maximum Pensionable Earnings (YAMPE): $81,200. This is used to determine the second level of CPP contributions for those earning employment and self-employment income. The YAMPE was introduced in 2024 as an enhancement for future CPP recipients.
• 2025 CPP Maximum Benefit: $1,433/month, provided you start your pension at age 65 and have qualified for the maximum benefit. Your actual benefit may differ depending on your own contributions and start date. This pension receives inflationary increases annually.
• 2025 OAS Maximum Benefit: $727.67/month, provided you start your pension at age 65, are eligible for the maximum, and your income does not exceed the Minimum Income Recovery Threshold of $148,451 in 2024. This pension receives inflationary increases quarterly, and an automatic 10% increase at age 75.
• 2025 Lifetime Capital Gains Exemption: $1,250,000 on the sale of qualified fishing or farming property, or qualified small business corporation shares
• 2025 U.S. Estate Tax Exemption: $13,990,000 USD
• 2025 U.S. Annual Gift Tax Exclusion: $19,000 USD
• 2025 U.S. Annual Non-Citizen Spouse Gift Tax Exclusion: $190,000 USD

What to expect? These won’t change… until next year! At least, we don’t think they will. That lifetime capital gains exemption amount actually did change in April of 2024 so, who knows? Not us.

Just like you, we’ll be reviewing the information as it comes, and weighing whether it is specifically useful in the decisions we’ll make going forward. If you are wondering if external changes like the ones above might mean a change to your plans, please get in touch. We’ll do our best to help you think it through!

Your Spring Planning Team

Practice Notes:

Happy new year! Your Spring team will be engaging in our annual retreat starting January 22, and will be back at our desks on January 27. This is our time to reflect on the year that has passed, learn from our experiences, make improvements, and – our favourite – plan ahead. We have always held out that the time between January 1st and the Lunar New Year (January 29th this year) is that space for us to contemplate and reflect. We hope you’ll be just as gentle with yourself as you step into a new year.

We’ll be taking the day off on Monday February 17th for Family Day.

We haven’t had a “free Friday” in a while, but we’re looking forward to gaining those back this summer. Keep your fingers crossed for us!

Spring in the News:

Julia spoke with Leah Golob of the Globe and Mail about the three common challenges advice-only financial planners face and often get wrong when starting out. Check out the full article here.

Please check out our media page here for videos, podcasts, interviews and more.

Planning News Digest:

• Social Security Windfall Elimination Provision Repeal –  The Social Security Fairness Act ends both the WEP and the government pension offset, increasing the Social Security checks for more than 2 million retired public servants. Check out the full update here.
• Charitable Donation Extension – The Government of Canada announced an extension of 2024 charitable donations to February 28, 2025 to mitigate the impacts of the four-week Canada Post mail stoppage by providing donors with sufficient time to ensure their contributions are received and processed. Read the full announcement here.
• What’s Changing for Personal Finance in 2025 (some information may already be out of date!) – With attention turning from tamping down inflation to spurring a lagging economy, the federal government released a host of new policies, as it prepares for an election in 2025. Find out more about the biggest changes here.

Feature from the Archives:

Safety and Security – We ask a lot of questions at Spring, and one of our main ones is: What do you hope to get out of your financial planning experience? We get a lot of answers to this question, but in one way or another, this answer sneaks its way in there: Peace of mind. But what does that mean – exactly? Given the dictionary definition of this phrase, we are pretty confident that “peace of mind” can be easily translated into this month’s key value: Safety and Security.

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