Personal Tax Updates
Personal tax season is upon us!
Let’s look at the key 2024 tax updates that may affect you:
Federal Tax Brackets:
· $0 to $55,867 (15%)
· $55,867 to $111,733 (20.5%)
· $111,733 to $173,205 (26%)
· $173,205 to $246,752 (29%)
· Over $246,752 (33%)
Ontario Tax Brackets:
· $0 to $51,446 (5.05%)
· $51,446 to $102,894 (9.15%)
· $102,894 to $150,000 (11.16%)
· $150,001 to $220,000 (12.16%)
· Over $220,000 (13.16%)
TFSA Contribution Limits: $7,000 for 2024 and 2025
RRSP Contribution Limits: $31,560 for 2024 and $32,490 for 2025, or 18% of your previous year’s earned income or the specified contribution limit, whichever is smaller. The deadline for contributing to an RRSP for the 2024 tax year is March 3, 2025.
OAS Recovery Thresholds: For those receiving the Old Age Security (OAS) pension, the minimum recovery threshold has increased to $90,997 in 2024. The OAS claw back remains at 15% for the portion of income exceeding the minimum threshold.
Home Buyers’ Plan: Exciting news for first-time home buyers! The withdrawal limit for the Home Buyers’ Plan (HBP) has been increased to $60,000 for withdrawals made after April 16, 2024. Additionally, those making their first withdrawal between January 1, 2022, and December 31, 2025, can defer the start of the 15-year repayment period by an extra three years. Consequently, the repayment period will now start in the fifth year following the year the first withdrawal was made.
Short-term Rentals: A crucial change to note for short-term rental income. Short-term rentals are defined as residential properties rented for less than 90 consecutive days.
Starting January 1, 2024, tax deductions for expenses incurred to earn such income will be denied if the rental activity is conducted in provinces or municipalities that prohibit short-term rentals. This applies to operators who are non-compliant with applicable licensing, permitting, or registration requirements. This change affects all expenses, including interest expenses, incurred for operating non-compliant short-term rentals. However, being fully compliant by December 31, 2024, will deem the individual compliant for the entire 2024 tax year.
Alternative Minimum Tax (AMT): Significant changes to AMT calculations, effective January 1, 2024, primarily affect high-income individuals, while reducing AMT exposure for lower and mid-income individuals. These changes include increasing the minimum tax rate and the basic exemption threshold, modifying the calculation of adjusted taxable income for AMT purposes, changing the special foreign tax credit and minimum tax carryover, and limiting the value of most non-refundable tax credits.
GST/HST Exemption: As of June 20, 2024, certain psychotherapists and counselling therapists will no longer be required to collect GST/HST on their services.
Charitable Donations: The Federal government proposed extending the 2024 charitable donations deadline to February 28, 2025, making donations eligible for claim on the 2024 personal income tax return. Although no legislation has been passed, the CRA will proceed with this proposed measure’s administration. Donated shares are excluded from this extension. Any unclaimed donations up to February 28, 2025, can be claimed on the 2025 return or carried forward.
Government Defers Capital Gains Inclusion Rate Increase to 2026
In a recent announcement on January 31, 2025, the Canadian government stated that the proposed increase in the capital gains inclusion rate would not be applicable for the 2024 tax filings. The initial plan, scheduled for June 25, 2024, aimed to raise the inclusion rate for individuals and corporations to two-thirds on gains exceeding $250,000. However, this change has now been deferred to January 1, 2026.
As per the government’s website, the following capital gains exemptions will be maintained or created:
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The Principal Residence Exemption remains unchanged, allowing Canadians to sell their primary residence without incurring capital gains taxes.
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A new $250,000 Annual Threshold for Canadians takes effect on January 1, 2026. This threshold will apply to those selling a secondary property, such as a cottage.
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An increase in the Lifetime Capital Gains Exemption to $1.25 million, retroactively effective from June 25, 2024. This raises the current exemption on small business shares and farming and fishing property sales from $1,016,836 to $1,250,000.
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The Canadian Entrepreneurs’ Incentive, set to begin with the 2025 tax year, aims to encourage entrepreneurship. It will reduce the inclusion rate to one-third for a lifetime maximum of $2 million in eligible capital gains. This maximum will increase by $400,000 each year, reaching $2 million in 2029.
The deferral provides taxpayers with more time to plan for the rate increase, ensuring they are prepared for the changes when they take effect in 2026. As always, it is advisable to consult with a tax professional or financial advisor to understand how these updates may impact your tax obligations.
Reporting Rules for Digital Platform Operators: To tackle perceived non-compliance in the sharing economy, starting in 2024, digital platform operators like Airbnb, Etsy, and Uber must report seller information to the CRA. This includes identification details, income earned by Canadian sellers, and, for rentals, specifics of the rental property. The CRA will utilize this information for compliance activities. Reportable sellers will receive an annual copy of the collected and reported information from their platform operator by January 31, 2025, to assist in filing their 2024 taxes.
A Recap of 2023 Tax Updates…
Introducing the First Time Home Saving Account (FHSA) in 2023
Effective April 1, 2023, the First Time Home Saving Account (FHSA) was made available to individuals who are at least 18 years old and under 72. This new account offers several benefits for eligible individuals looking to save for their first home purchase.
Annual Contribution Limits:
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An annual tax-deductible contribution limit of $8,000 is allowed.
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Up to $8,000 of unused contribution room can be carried forward to subsequent years.
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The lifetime maximum contribution limit is $40,000.
Investment Income: Investment income earned within the FHSA is not subject to taxation, allowing for tax-free growth of your savings.
Account Lifetime: The FHSA lifetime begins when the account is opened and ends at the end of the year following the occurrence of one of these events:
· The 14th anniversary of the account opening date
· The account holder reaches 70 years old
· A qualifying withdrawal is made
Contribution Deadlines: Contributions must be made by December 31st to claim a deduction for that tax year, although contributions can be carried forward indefinitely.
Fund Transfers:
· Funds can be transferred from an RRSP to an FHSA within the contribution limits tax-free, without affecting your RRSP contribution room.
· Remaining FHSA funds can be transferred to an RRSP or RRIF without affecting your RRSP limit.
Withdrawals:
· Withdrawals made to purchase a qualifying home are non-taxable.
· Withdrawals for any other purpose are considered taxable income.
Benefits of FHSA: Even if you’re a qualified individual with no immediate plans to buy a home, the FHSA may offer advantages. If you’ve already maxed out your RRSP contributions, the FHSA provides an additional deduction opportunity, and funds can eventually be transferred to an RRSP or RRIF without impacting your RRSP limit.
Tax Reporting: Starting in 2023, T4FHSA slips will be issued, detailing information such as FHSA deductible contributions, qualifying withdrawals, and taxable withdrawals.
If you’re a first-time home buyer or seeking additional tax deductions, consider exploring the benefits of the First Time Home Saving Account (FHSA) with the guidance of a financial advisor or tax professional.
Residential Property Flipping and the Multigenerational Home Renovation Tax Credit
As a home owner or investor, it’s essential to be aware of the new regulations regarding residential property flipping, which came into effect on January 1, 2023. Under these rules, any gains from the sale of residential property (including rental property and assignment sales) owned for less than 365 days will be considered business income rather than capital gains. Consequently, such gains will not be eligible for the principal residence exemption. However, some exemptions may apply in certain life circumstances, such as death, separation, birth, safety issues, illness/disability, employment changes, insolvency, or involuntary dispositions. If a gain is classified as business profit, additional expenses like mortgage interest might be allowed.
Another noteworthy development for 2023 is the introduction of the Multigenerational Home Renovation Tax Credit (MHRTC). This refundable tax credit applies to renovation expenses incurred after December 31, 2022, for the creation of a secondary self-contained unit within a home to house a related senior (65 years or older) or an adult eligible for the disability tax credit. The MHRTC covers up to $50,000 in qualifying expenditures, offering a refundable tax credit of 15% on these expenses. Taxpayers must claim the credit in the year that the renovation is completed.
Additionally, the Underused Housing Tax (UHT) warrants attention. This annual 1% tax targets the value of residential real estate owned by non-residents that is deemed vacant or underused. However, certain Canadian individuals on the title of a residential property as of December 31 might also need to file UHT returns. This can occur in situations where a person holds the property in trust for another (such as when they are on the title but not the true owner) or when a person holds the property as a partner for a partnership.
With these new regulations and tax credits in place, it is crucial for individuals and tax professionals to be aware of their implications and ensure compliance to maximize benefits and avoid potential penalties. Consulting with a tax advisor can provide further clarity on how these changes may impact specific situations.
