Donations, medical expenses, AMT, RESP and principal residence: tax guide 2026

A. Charitable donations: credits and strategies

Charitable donations provide non-refundable tax credits at both the federal and provincial levels. The credit is progressive: the rate is higher beyond the first $200.

Federally (s. 118.1 ITA): 15% on the first $200, then 29% beyond. If taxable income exceeds $246,752, the rate increases to 33% on the corresponding portion of the donation. In Quebec: 20% on the first $200, then 25.75% beyond. The annual donation limit is 75% of net income. In the year of death and the preceding year, the limit is 100% of net income.

Unused donations can be carried forward for 5 years. The first-time donor super credit offers an additional 25% for taxpayers who have never claimed a donation of more than $200 in the previous 5 years.

In-kind donation of listed securities: the double advantage

The in-kind donation of publicly listed securities is the most tax-advantageous giving strategy in Canada. When a taxpayer donates stocks or listed funds directly to a registered charity, two advantages combine.

First advantage: the taxpayer receives a donation receipt based on the fair market value (FMV) of the securities on the day of transfer. Second advantage: the capital gain realized on the transfer is at 0% inclusion. No capital gains tax.

Concrete example: a client holds stocks purchased for $10,000 now worth $50,000. If they sell the stocks and donate the cash: they pay tax on a $40,000 gain (approximately $10,000 in tax at a 50% marginal rate with 50% inclusion), then donate $40,000. If they donate the stocks directly: they receive a $50,000 receipt, pay $0 tax on the gain, and get a donation credit on $50,000. The savings are significant.

B. Medical expenses: tax credit and strategies

The medical expense credit (s. 118.2 ITA) is a non-refundable credit for eligible medical expenses exceeding a threshold. The threshold is the lesser of 3% of net income or $2,759 (2026, indexed). The eligible period is 12 months ending in the tax year (not necessarily the calendar year).

Eligible expenses: physician, dentist, optometrist, chiropractor, physiotherapist services; private health insurance premiums (employee and employer portion for group insurance); prescription drugs; ambulance; dental, hearing, and visual prosthetics; wheelchair and mobility aids; home modifications for a disabled person.

NOT eligible: purely cosmetic surgery; non-prescription vitamins and supplements; gym memberships; fitness classes; childcare expenses (covered by a separate credit).

Key strategy: group medical expenses in the same 12-month period to exceed the threshold. For example, plan dental work, eyeglasses purchase, and medical exams in the same period. Claim expenses under the lower-income spouse (3% threshold is easier to reach with lower income).

C. Alternative Minimum Tax (AMT): new regime 2024+

The Alternative Minimum Tax (AMT) was substantially reformed starting in 2024 (s. 127.5-127.55 ITA). The goal is to ensure that high-income taxpayers who use significant deductions and credits pay a minimum amount of tax.

The AMT rate increased from 15% to 20.5%. The calculation base was expanded: 100% of capital gains are included (instead of 80%), 100% of actual dividends are used (instead of the gross-up amount), and stock option benefits are included. The exemption is $181,440 (2026, indexed annually).

If a taxpayer pays AMT, the excess amount over regular tax becomes a recoverable credit over the next 7 years. In other words, AMT is often a prepaid tax rather than a permanent additional tax.

Situations most likely to trigger AMT: large capital gain realization (sale of real estate, business, or portfolio); significant donations of listed securities (the 0% inclusion gain is added to the AMT base); exercise of stock options. Advisors must alert at-risk clients and recommend planning with a tax specialist before major transactions.

D. RESP: detailed taxation

The Registered Education Savings Plan (RESP) is a savings vehicle where contributions are NOT deductible from income (unlike the RRSP), but growth is tax-sheltered as long as funds remain in the plan (s. 146.1 ITA).

Government grants: the CESG (Canada Education Savings Grant) is 20% on the first $2,500 contributed per year, up to a maximum of $500 per year and a lifetime cap of $7,200 per beneficiary. The CLB (Canada Learning Bond) provides $500 at RESP opening plus $100 per year for low-income families, up to a maximum of $2,000.

On withdrawal, contributions are returned to the subscriber tax-free (they were not deducted). EAPs (Educational Assistance Payments) -- which include grants and growth -- are taxable for the student beneficiary. Since students generally have low income, the tax is minimal or nil.

If the child does not pursue post-secondary education, the subscriber has several options: wait (the RESP can exist up to 36 years after opening); change the beneficiary (sibling); transfer the growth to their RRSP (if contribution room is available, maximum $50,000, subject to conditions); or withdraw the growth as AIP (Accumulated Income Payment), which is taxable at the marginal rate plus a 20% penalty. Government grants must be repaid in all cases.

E. Principal residence exemption

The principal residence exemption (s. 40(2)(b) and 54 ITA) completely eliminates the capital gain on the sale of a qualifying residence. The exemption formula is: gain x (1 + years of designation) / years of ownership.

The "+1" in the formula allows one year of overlap when a taxpayer sells one residence and purchases another in the same year. Since 1982, only one residence can be designated per family unit per year. A family unit includes the taxpayer, their spouse, and their minor children.

Eligible property types include: house, condo, cottage, mobile home, farm (if the land is less than 0.5 hectares, or if the excess portion is used to operate the farm). The taxpayer must have ordinarily inhabited the property during the year to designate it.

Since 2016, form T2091 (Designation of a Property as a Principal Residence) is mandatory on sale, even if the gain is fully exempt. Failure to file the form can result in CRA denying the exemption. Strategy: for families that own both a house and a cottage, designations must be optimized year by year to exempt the property with the largest gain.

F. Capital loss carryover and utilization

Net capital losses (s. 3, 38, 39, 111 ITA) are deductible only against capital gains. They can be carried back 3 years or carried forward indefinitely. If the inclusion rate has changed between the loss year and the application year, an adjustment is necessary.

Non-capital losses (employment losses, business losses) are deductible against all types of income. They can be carried back 3 years and carried forward 20 years.

The ABIL (Allowable Business Investment Loss) is a capital loss on a loan or investment in a Canadian-controlled private corporation (CCPC). It is special because 50% of the loss is deductible against all types of income (not just capital gains). If the ABIL is not used within 10 years, it reverts to an ordinary capital loss.

Losses on the disposition of personal-use property are generally non-deductible. The exception is for listed personal property (artwork, jewelry, stamps, coins) with a cost exceeding $1,000.

Strategy: at year-end, realize capital losses to offset gains realized during the year (tax-loss harvesting). Beware of the superficial loss rule: if the same security is repurchased within 30 days (before or after the sale), the loss is denied and added to the cost of the repurchased security.

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