What’s New for the 2024 Tax Season

In Budget 2024, the Federal Government proposed to increase the capital gains inclusion rate from 50 per cent to 66.67 per cent, effective for gains realized on or after June 25, 2024, with individuals benefiting from a $250,000 annual threshold at the 50 per cent rate. However, on January 31, 2025, the Federal Government announced that it is deferring the proposed increase in the capital gains inclusion rate to January 1, 2026, such that it should not be applicable for the 2024 and 2025 taxation years.

The Lifetime Capital Gains Exemption (LCGE) allows individuals to realize tax-free capital gains if the disposed-of property qualifies. For dispositions of qualified small business corporation shares, the LCGE has increased to $1,016,836 in 2024. The government has proposed to increase the LCGE to $1,250,000 beginning on June 25, 2024.

The federal government proposes to allow certain donors to claim the benefits of a donation made up to February 28, 2025 on their 2024 personal tax returns.

For individuals, donations can be claimed on their 2024 personal tax returns if all of the following conditions are met:

1. The donation is made on or before February 28, 2025;
2. The donation was in the form of cash or was transferred by way of cheque, credit card, money order or electronic payment; and 
3. The donation was not made through a payroll deduction, or if the individual died after 2024, by the individual's will. 

The Alternative Minimum Tax (AMT) is often applicable when an individual claims preferential deductions, exemptions or credits against their income. Its purpose is to ensure that individuals pay a baseline minimum amount of tax. AMT is, however, effectively a prepayment of income taxes, as any AMT paid can generally be carried forward for up to seven years and used as a credit to offset regular income tax payable in a future year. Be mindful that if you do not pay enough regular income tax to recover the AMT within the seven year carry forward period, the AMT will become an unrecoverable permanent tax cost.

There will be a shift in the AMT system starting in 2024, which may affect taxpayers claiming certain deductions or credits on their 2024 personal income tax returns. The new AMT landscape may reduce the benefits of certain tax optimization strategies that have been used in the past.

The Government of Canada announced measures to deny income tax deductions for expenses incurred to earn short-term rental income in provinces and municipalities that have prohibited short-term rentals, and where short-term rental operators are not compliant with the applicable provincial or municipal licensing, permitting, or registration requirements. These measures will apply to expenses incurred on or after January 1, 2024.

Effective January 1, 2024, the government introduced a second CPP earnings ceiling which applies to individuals who have an income above the first earnings ceiling ($68,500 for 2024 and $71,300 for 2025). These individuals will be required to contribute an additional percentage of the income they earn above the first ceiling, up to the second ceiling ($73,200 for 2024 and $81,200 for 2025). The rate for the first ceiling is 5.95 per cent (11.9 per cent for self-employed individuals), while the rate for the second ceiling is four per cent (eight per cent for self-employed individuals).

The maximum Registered Retirement Savings Plan (RRSP) contribution limit for 2024 is $31,560 and $32,490 for 2025. Your RRSP contribution room for 2024 is generally calculated as 18 per cent of your 2023 earned income, less 2023 pension adjustments to a maximum of $31,560, plus any unused RRSP deduction room carried forward from prior years.

You could find your RRSP contribution room on your 2023 Notice of Assessment or on your CRA MyAccount. 

The Tax-Free Savings Account (TFSA) annual contribution limit for the 2024 and 2025 tax years is $7,000 each and, the cumulative contribution limit has increased to $102,000 for 2025. Investment income earned in your TFSA is not taxable, but the contributions you make to your TFSA are not deductible.

The Home Buyers’ Plan (HBP) limit has increased to $60,000. The plan allows first time home buyers to withdraw money from their RRSP without triggering immediate income tax consequences. Amounts withdrawn under the HBP must be repaid to an RRSP over a period not exceeding 15 years, starting in the second year following the year in which the withdrawal was made to prevent any income inclusion.

The Tax-Free First Home Savings Account (FHSA) is a new registered plan aimed at helping Canadians purchase their first home. The registered plan would enable eligible first-time home buyers to save $40,000 on a tax-free basis. An FHSA combines the features of an RRSP and a TFSA. Similar to an RRSP, contributions made to the FHSA will be deductible for tax purposes and, like a TFSA, withdrawals would be non-taxable if used to purchase a first home. Since this is a tax-free account, you will not pay any taxes on investment income earned within the account. Annual contributions are limited to $8,000 and lifetime contributions are limited to $40,000. You may carry forward up to $8,000 of your unused annual contribution to use at a later date, but a FHSA account must be open for you to be able to accrue the FHSA contribution amount for a year.

The Toronto Vacant Home Tax (VHT) is an annual tax on vacant homes in Toronto. The VHT requires residential property owners to submit a declaration of their property’s status, annually. Homeowners who choose to keep their properties vacant will be subject to this tax, which is now three per cent (one per cent in 2022 and 2023) of the Current Value Assessment (CVA) of the property. The VHT will be imposed on all Toronto residences that are declared, deemed or determined to be vacant for more than six months during the previous year.

Although all property owners are required to submit a declaration, the tax does not apply to properties that:

1. Are the principal residence of the owner;
2. Are the principal residence of a permitted occupant or tenant; or
3. Qualify for an exemption.

The deadline to declare a property’s 2024 occupancy status is April 30, 2025. Speak to your Crowe Soberman advisor regarding the VHT filing requirement.

The Underused Housing Tax (UHT) is an annual one per cent tax on the ownership of vacant or underused housing in Canada. The UHT generally applies to individuals who are not Canadian citizens or permanent residents of Canada. The UHT also applies to foreign corporations, certain Canadian corporations that have foreign ownership, and certain trusts and partnerships. These types of owners (“Affected Owners”) are required to file a UHT return.

Still, the tax will not apply if the property is occupied by the owner or rented to an individual at fair value in periods of at least one month that total 180 days or more in the calendar year. Additional exceptions can be discussed and tackled with Crowe Soberman’s tax team.

The UHT tax return for a calendar year must be filed by April 30 of the following calendar year. The 2024 UHT filing deadline is April 30, 2025.

There are penalties if you fail to file a UHT tax return on time, even if an exemption applies and no UHT is owing. Affected Owners who are individuals are subject to a minimum penalty of $1,000 and affected Owners that are corporations are subject to a minimum penalty of $2,000.

You are able to claim a tax credit for eligible medical expenses paid for your dependent children if they were under 18 years of age at the end of the tax year. However, the total medical expenses for the family must exceed the lesser of $2,759 or three per cent of the parent’s net income for 2024.

For 2023 and subsequent years, the list of eligible medical expenses eligible for the tax credit has been expanded to include surrogacy and other related expenses. Further, claims for surrogacy and donor related expenses have been expanded to include individuals or their spouse.

You may be able to deduct certain expenses, including any applicable GST/HST you paid to earn employment income. You can do so only if your employment contract required you to pay the expenses and you did not receive an allowance for them, or the allowance you received is included in your income. Generally, Form T2200, Declaration of Conditions of Employment must be completed by your employer for you to be able to deduct employment expenses from your income.

The simplified home office expense deduction that was previously available during the COVID-19 pandemic (2020, 2021, and 2022 tax years) is no longer available. As such, unless your employer requires you to work from home, you will not be eligible to claim the home office expense deduction.

Unpaid taxes and instalments will accrue interest with daily compounding. The prescribed interest rate is currently eight per cent. Therefore, missing the payment deadline or making insufficient instalments could be costly.