Published: December 27, 2024
Tax planning is an ongoing, not a set-and-forget, exercise. As the year is drawing to an end, this is a good time to review your annual tax planning for 2024 and beyond, as well as a last chance to reduce your 2024 taxes. Please note that this issue of year-end tax tips is only a summary of some of the most significant tax changes of the year. Please always consult with experienced Canadian tax lawyers when planning your taxes.
1. Increase in capital gains inclusion rate
The 2024 Federal Budget proposed to increase the capital gains inclusion rate from 1/2 (50%) to 2/3 (66.67%) for capital gains realized on or after June 25, 2024. The proposal is expected to be enacted into law. For corporations and trusts, all capital gains would be subject to the 2/3 inclusion rate.
For individuals as well as graduated rate estates and qualified disability trusts, the 2/3 inclusion rate would only apply to annual capital gains in excess of $250,000. Capital gains of the first $250,000 will continue to be included at a 1/2 rate. Therefore, if you are an individual expecting to realize annual capital gains over $250,000 in the near future, consider triggering some gains at the end of 2024 to utilize the $250,000 low inclusion rate room in 2024.
A new $250,000 low-inclusion room will become available in 2025, allowing you to spread your tax over the years. Otherwise, if you do not expect to realize annual capital gains over $250,000, it is better to defer triggering capital gains and paying taxes on 2025 gains in April 2026.
2. Net capital losses carryover in a transition year
Net capital losses may be carried back three years and forward indefinitely to offset taxable capital gains (after the inclusion rate is applied) of other years. Where the inclusion rates in the year the capital losses were incurred and the year the offset takes place are different, the net capital losses must first be reverted to the capital losses using the inclusion rate applicable at the year of loss and converted to net capital losses using the inclusion rate applicable at the year of offsetting.
Then, the adjusted net capital losses may be applied against the taxable capital gains. In a transition year such as 2024 when there are two different inclusion rates (1/2 before and 2/3 after June 25), the taxable capital gains of the two periods are to be calculated separately. Then, net capital losses carryover will apply first to offset taxable capital gains subject to the higher inclusion rate.
3. Take advantage of allowable business investment loss
If you have equity investments or loans to a Canadian small business corporation that has become insolvent or bankrupt, consider claiming an allowable business investment loss (ABIL). Unlike net capital losses, an ABIL can be carried back for three years and forward for ten years and is fully deductible against any source of income, not just capital gains.
To be eligible, the disposition of equity or loans must be either to an arm’s length party or by election under subsection 50(1) of the Income Tax Act.
4. Increase in Lifetime Capital Gains Exemption
Also, as part of the 2024 Federal Budget, the Lifetime Capital Gains Exemption (LCGE) is increased to $1.25 million. This new threshold applies to eligible dispositions on or after June 25, 2024, and indexation to inflation will resume in 2026.
LCGE allows business owners to claim a deduction of taxable income on the first $1.25 million of the gains realized from the sale of qualified small business corporation shares. To be eligible, throughout the 24 months prior to the sale, the shares must have been of a Canadian-controlled private corporation (CCPC), which utilized more than 50% of its assets to carry on active business in Canada.
5. Increase in capital gains exemption for the sale of a business to an Employee Ownership Trust
Starting from 2024, a business owner selling his or her business to an Employee Ownership Trust (EOT) will be entitled to an exemption for the first $10 million of the capital gains realized from the disposition, subject to certain conditions. This exemption will be effective until the 2026 tax year. An EOT aims to facilitate the purchase of a business by its employees via a trust arrangement.
The business itself supplies the necessary funds to the EOT, which must acquire a controlling interest in the business post-transaction, and the business owner will get paid through the business. This arrangement alleviates the need for the employees to seek financing from banks or other financial institutions, although banks or financial institutions can still be used to provide some funding.
6. Accelerated Capital Cost Allowance
The 2024 Federal Budget also introduced accelerated Capital Cost Allowance (CCA) for innovation-enabling and productivity-enhancing assets and new purpose-built rental projects in an effort to boost productivity and innovation, tackle the housing crisis, and create jobs. Specifically, for the innovation-enabling and productivity-enhancing assets, the benefited CCA classes are 44, 46, and 50 (patents and licenses, data network infrastructure equipment, data processing equipment, and related system software).
If these capital assets are purchased after April 15, 2024, and become available for use before 2027, they will be eligible for immediate write-off, i.e. 100% CCA deduction. Normally, the costs of depreciable properties must be deducted over a number of years.
As for homebuilders, if the residential rental projects begin construction after April 15, 2024, and become available for occupation before 2036, the projects will be eligible for an accelerated CCA deduction rate of 10%, instead of the previous 4%.
7. Be cautious with commercial debt forgiveness
Commercial debt is an obligation undertaken to generate income for a business. The forgiven amount will reduce the debtor’s various tax attribute pools according to a specified order, starting with non-capital losses and net capital losses. Other special rules will also apply.
8. Take advantage of deductible interest
Not all interest receives the same tax treatment. Among other criteria, interest expenses rising out of a loan borrowed or property acquired for the purpose of earning income from business or property are deducible. Therefore, an investor can try to restructure his or her portfolio such that the investment generates income, e.g. dividends or rental income, in order to take advantage of this deductibility.
The deduction is not available for investments that only produce capital gains.
9. Increase in Alternative Minimum Tax rate
On January 1, 2024, the federal Alternative Minimum Tax (AMT) rate increased to 20.5% from 15%. Other notable changes to the AMT regime effective in 2024 include the increase of the AMT exemption to the fourth federal tax bracket ($173,205 as of 2024 and indexed annually to inflation) from $40,000, and the increase of the inclusion rate for capital gains will be increased to 100% from 80%.
AMT was introduced in 1986 to prevent high-income earners from paying minimal or no tax by taking advantage of preferential tax treatments. The AMT regime works in parallel with the general income tax regime. Tax payable shall be calculated using both the normal method, taking into consideration all the preferential treatments, and under the AMT method, ignoring the preferential treatments.
If the tax payable under the normal method is lower, the taxpayer must pay additional tax to match the figure derived under the AMT method.
10. Increase in Home Buyers’ Plan withdrawal limit
The Home Buyers’ Plan (HBP) is a program that allows a Canadian resident who has a Registered Retirement Savings Plan (RRSP) to withdraw from his or her RRSP in order to purchase or build his or her first home.
From April 16, 2024, the withdrawal limit is increased to $60,000. HPB allows repayment of the money withdrawn back to RRSP within 15 years. However, if you make your first withdrawal in 2022-2025, a temporary relief introduced in 2024 allows you to defer the start of the 15-year repayment period by three years.
11. Canada Greener Homes Loan
The Canada Greener Homes Loan offers up to $40,000 in interest-free financing to help Canadians retrofit their homes for better energy efficiency. It is only available at the pre-retrofit stage to a principal residence owned by the applicant and is not available to newly built homes. Please note that the Canada Greener Homes Grant is now closed for new applicants.
12. Non-deductible expenses for non-compliant short-term rental properties
Non-compliant short-term rental properties are residential properties that are offered to lease for less than 90 consecutive days and located in a province or municipality that forbids short-term rental activities, such as Airbnb or Vrbo.
To address the housing shortage and encourage long-term rentals, starting from 2024, expenses incurred for non-compliant short-term rental properties shall not be deducted from income. Expenses for long-term rental properties or compliant short-term rental properties continue to be deductible.
13. Canada Education Savings Grant
To encourage post-secondary education, Employment and Social Development Canada (ESDC) offers the Canada Education Savings Grant (CESG) for every beneficiary of a Registered Education Savings Plan (RESP). For each beneficiary, ESDC will deposit directly to the RESP a grant of 20% of the annual contributions you make to the RESP, up to $500, with a lifetime limit of $7,200.
14. New Canadian Dental Care Plan
A Canadian resident and his or her spouse or common-law partner who has an adjusted family net income (AFNI) of less than $90,000 and does not have access to dental insurance can now apply for the Canadian Dental Care Plan. The spouse or common-law partner must also be a Canadian resident.
15. Increase in income recovery threshold for Old Age Security
When the net income exceeds the income recovery threshold, which is $90,997 in 2024 (adjusted from $86,912 in 2023), a senior will lose all or part of his or her Old Age Security (OAS) pension. The senior can either limit his or her income or delay receiving the pension for up to 60 months (5 years).
16. Canada Pension Plan income sharing
You can share your Canada Pension Plan (CPP) retirement pension with your spouse or common-law partner, which might result in tax savings. To do so, you will need to apply for a pension-sharing arrangement for the CRA’s approval.
17. Bare trusts not required to file T3 and Schedule 15
Bare trusts are not required to file T3 returns and Schedule 15 for the 2024 tax year unless specifically requested by the CRA to file, extended from a similar exemption for the 2023 tax year. Before the exemption, new trust reporting rules effective from the 2023 tax year require nearly all trusts, including bare trusts, to file T3 return and Schedule 15 annually.
The Department of Finance has proposed some amendments in order to clarify the rules, which will likely become effective for the 2025 tax year. A bare trust is a trust arrangement with a singular function, with the trustee holding legal ownership of the trust property, where the beneficiaries hold the beneficial ownership.
Bare trusts can be simple (e.g. parents hold property in trust for their underage children or adult children hold property in trust for their elderly parents) or complicated (e.g. a property developer sets up a bare trust that holds the registered title to the real property).
18. Contributions to registered accounts
The end of the year is also a good time to take advantage of the special tax treatments provided under various registered accounts, if you have not already done so.
19. Tax-Free Savings Account (TFSA)
A Canadian resident aged 18 and above can open a TFSA. Contributions are not tax-deductible and must be made by the end of the calendar year, but earnings and withdrawals are tax-free. Withdrawals can be made at any time.
Contributions are subject to annual contribution limits (indexed to inflation and rounded to the nearest $500) and are accumulated annually. The contribution room for 2024 is $7,000, and the accumulated contribution limit since 2009, when TFSA was introduced and if you were a Canadian resident aged 18 or above, is $95,000.
20. Registered Retirement Savings Plan (RRSP)
A Canadian resident can open an RRSP and hold it until the age of 71. While there is no minimum age requirement, some financial institutions may require customers to be at the age of majority.
Contributions, up to the deduction limit, are tax-deductible. The contribution deadline is 60 days after the end of the calendar year. The 2024 contribution deadline is March 3, 2025, as March 1 is a Saturday. The deduction limit for 2024 is the lower of $31,560 and 18% of your earned income in the previous year (2023). Earnings are tax-deferred until withdrawal.
Withdrawals can be made at any time and will be included in taxable income for the year of withdrawal. If not holding until 71, it is recommended that you withdraw in the year when your income is low in order to minimize tax payable.
21. Registered Retirement Income Fund (RRIF)
A Canadian resident can open an RRIF. When you turn 71, your RRSP can be converted into an RRIF, which, therefore, can be seen as an extension of the RRSP. You cannot make contributions to RRIF. Earnings are tax-deferred, and withdrawals are taxable.
Although there is no cap on the withdrawal, there is a minimum annual withdrawal. Any withdrawal in excess of the minimum amount will be subject to a withholding tax. When you turn 71 and do not convert your RRSP into RRIF, your plan will be considered “deregistered,” and the savings will be paid out in cash, fully taxable. Thus, if you are reaching 71 and have RRSP, consider making the conversion to RRIF.
22. First Home Savings Account (FHSA)
A Canadian resident aged 18 and above who is a first-time homebuyer can open a FHSA. The account can be held for 15 years, or until the age of 71, or until the first home purchase, whichever is earliest. Contributions are tax-deductible like RRSPs, and earnings and qualified withdrawals are tax-free like TFSAs.
A withdrawal is qualified when it is to purchase your first home; otherwise, the withdrawal is taxable. Hence, FHSA combines some of the best features of both RRSP and TFSA. However, contributions to FHSAs are subject to much lower limits, $8,000 annually and $40,000 in total. The contribution deadline is the end of the calendar year. If you plan to buy your first home, you should contribute to an FHSA by year-end.
23. Registered Education Savings Plan (RESP)
A Canadian resident can open a RESP, contribute for 31 years, and must close the account after 35 years. RESP is used to pay for post-secondary education of a beneficiary, who can be a child or grandchild of the account subscriber, someone else’s child, or the subscriber himself or herself.
Contributions are not tax-deductible, earnings are tax-deferred, and withdrawals are taxed at the hands of the beneficiaries. A RESP can have multiple beneficiaries, and a beneficiary can have multiple RESPs. However, a beneficiary does have a lifetime contribution limit of $50,000 for all his or her RESPs combined. Therefore, pay attention to the contribution limit for your child’s RESP.
24. Registered Disability Savings Plan (RDSP)
A RDSP can be opened for a beneficiary who is a Canadian resident under the age of 60 and eligible for the disability tax credit. Contributions are not tax-deductible, but earnings and withdrawals are tax-free at the hands of the beneficiary.
There is neither limit nor deadline for annual contribution. Nevertheless, there is a lifetime contribution limit of $200,000 per beneficiary, and contributions can only be made until the end of the year in which the beneficiary turns 59. A beneficiary can only have one RDSP at any given time.
Here is the summary of all the registered accounts discussed above.
| TFSA | RRSP | RRIF | FHSA | RESP | RDSP | |
| Purpose | Saving | Retirement | Retirement | First home purchase | Education | Disability |
| Contribution | Not tax-deductible | Tax-deductible | No contribution | Tax-deductible | Not tax-deductible | Not tax-deductible |
| 2024 Contribution room | $7,000
| Lower of $31,560 and 18% of 2023 earned income | Not applicable | $8,000 | No limit | No limit |
| Accumulated contribution limit | $95,000 (subject to conditions) | No limit | Not applicable | $40,000 | $50,000 per beneficiary for all RESPs combined | $200,000 per beneficiary |
| Contribution deadline | December 31, 2024 (year-end) | March 3, 2025 (60 days after year-end) | Not applicable | December 31, 2024 (year-end) | Contributable for 31 years | End of the year in which the beneficiary turns 59 |
| Earnings | Tax-free | Tax-deferred | Tax-deferred | Tax-free | Tax-deferred | Tax-free |
| Withdrawal | Tax-free | Taxable | Taxable | Tax-free | Taxable | Tax-free |
| Withdrawal limit | Up to available fund | Up to available fund | Minimum annual withdrawal (excess withdrawal subject to withholding tax) | Up to available fund | Up to available fund | Up to available fund |
| Withdrawal deadline | No deadline | At age 71 | Until fund runs out | Earliest of 15 years, until age 71, and until first home purchase | After 35 years | Depend on issuer |
Upcoming tax deadlines
| Date | Deadline |
| December 31, 2024 | Contributions to TFSA and FHSA |
| March 3, 2025 | Contribution to RRSP |
| March 31, 2025 | Income tax return filing for trusts and estates (bare trusts are exempt from filing for 2024) |
| April 30, 2025 | Income tax return filing for individuals (without self-employment income) |
| June 15, 2025 | Income tax return filing for sole proprietorships (individuals with self-employment income) (The filing deadline for corporations is 6 months after fiscal year-end) |
Tax brackets and rates for 2024
The federal tax brackets and rates for individuals in 2024 are:
| Tax bracket | Rate |
| Up to $55,867 | 15% |
| 55,868 – 111,733 | 20.5% |
| 111,734 – 173,205 | 26% |
| 173,206 – 246,752 | 29% |
| 246,753 and above | 33% |
The federal tax rates for general corporations in 2024 are:
| Manufacturing & processing income | Active business income | Investment income | |
| General corporate rate | 38% | 38% | 38% |
| Federal abatement | (10%) | (10%) | (10%) |
| Manufacturing & processing deduction | (13%) | Not applicable | Not applicable |
| General reduction | Not applicable | 13% | 13% |
| Gross federal rate | 15% | 15% | 15% |
The federal tax rates for Canadian-controlled private corporations (CCPCs) in 2024 are:
| Small business income (up to first $500,000) | Active business income | Investment income | |
| General corporate rate | 38% | 38% | 38% |
| Federal abatement | (10%) | (10%) | (10%) |
| Small business deduction | (19%) | Not applicable | Not applicable |
| General reduction | Not applicable | (13%) | Not applicable |
| Refundable tax | Not applicable | Not applicable | 10.7% |
| Gross federal rate | 9% | 15% | 38.7% |
We hope this issue of year-end tax tips has been helpful to you. Remember, this is only a summary of some of the most significant tax changes of the year. Please always consult with experienced Canadian tax lawyers when planning your taxes. On behalf of Rotfleisch & Samulovitch Professional Corporation, we wish you a joyous holiday and a happy new year!
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DISCLAIMER: This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.
