Year-end tax tips: Here’s what is unique to 2024

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With simply six weeks to go earlier than Dec. 31, now could be the right time to start your year-end tax planning. Right here’s a couple of issues to contemplate, that are distinctive to 2024.

Tax-gain promoting

The 2024 federal budget proposed a rise to the capital gains inclusion rate for beneficial properties realized on or after June 25, 2024, whereby the inclusion fee was elevated to 66.67 per cent, up from 50 per cent. People and sure trusts (particularly, graduated fee estates and certified incapacity trusts) are nonetheless entitled to the previous 50 per cent inclusion fee on the primary $250,000 of capital beneficial properties yearly. The rise within the tax fee on capital beneficial properties over $250,000 is about 9 proportion factors, relying in your province or territory of residence.

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Whereas the laws hasn’t but been handed, it’s broadly anticipated to ultimately obtain royal assent, and be efficient as of this June 25. For traders with vital accrued capital beneficial properties of their portfolios, a brand new tax planning possibility exists for 2024.

Contemplate whether or not it’s value crystalizing as much as $250,000 of capital beneficial properties earlier than yr finish to benefit from the decrease 50 per cent inclusion fee. Crystallization for publicly traded shares is as simple as promoting the place on the open market and instantly shopping for it again. Be aware that, in contrast to for loss crystallization, there’s no equal superficial achieve rule, that means you don’t want to attend 30 days to purchase again the inventory on which you crystalized a capital achieve.

For 2024, the final commerce date is Dec. 30 for the commerce to settle by Dec. 31.

When deciding whether or not to make this transfer, contemplate your anticipated fee of return and time horizon. For instance, if the tax that you simply don’t pay for 2024 was invested to earn six per cent capital beneficial properties, compounded yearly, it might take about eight years of tax-deferred development, after-tax, to beat the tax financial savings attributable to the decrease inclusion fee.

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First residence financial savings accounts

Should you’re a first-time homebuyer who’s a resident of Canada and not less than 18, the first home savings account (FHSA) permits you to save on a tax-free foundation towards the acquisition of a house in Canada.

A primary-time homebuyer means you didn’t dwell in a house that you simply or your partner or associate owned as your principal place of residence in 2024, or within the earlier 4 calendar years.

Beginning within the yr that you simply open an FHSA, you may contribute (or switch from a registered retirement savings plan, or RRSP) a complete of $8,000 plus any carryforward (as much as one other $8,000) out there from the earlier yr, and as much as $40,000 throughout your lifetime.

Should you opened an FHSA in 2023 however didn’t but make any contributions to the FHSA, you may contribute as much as a complete of $16,000 in 2024. You may declare a tax deduction for contributions inside this restrict within the yr the contribution was made and any unused contributions might be deducted in any future yr. Not like RRSPs, contributions you make inside the first 60 days of 2025 can’t be deducted in 2024, that means that there’s a laborious contribution deadline of Dec. 31, 2024, for the 2024 contribution.

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It’s vital to understand that as a result of FHSA room solely begins accumulating when you open up your first FHSA, it might be worthwhile opening up your first FHSA by Dec. 31, 2024, even for those who don’t have the funds to contribute the complete $8,000 this yr. That’s as a result of by merely opening up the account in 2024, you’ll generate $8,000 of FHSA contribution room for 2024, and on Jan. 1, 2025, generate an extra $8,000 of room, that means that you might contribute as much as $16,000 subsequent yr.

The very best a part of the FHSA is that the contributions can develop tax-free for as much as 15 years, and withdrawals to buy a qualifying residence, together with withdrawals of any funding revenue or development earned within the account, are non-taxable, similar to tax-free financial savings account withdrawals.

And, for those who select to not use the FHSA to purchase a primary residence, you all the time have the choice (till the tip of the yr you flip 71 or 15 years after opening an FHSA, whichever comes first) of transferring the complete truthful market worth of the FHSA to your RRSP or registered retirement income fund (RRIF) on a tax-free foundation. These transfers don’t use RRSP contribution room, and the funds now in your RRSP or RRIF will solely be taxed upon final withdrawal (or upon demise).

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Mother and father or grandparents of youngsters or grandchildren over the age of majority (18 or 19, relying in your province or territory of residence) might want to contemplate gifting as much as $8,000 to every youngster or grandchild in order that they’ll open up their very own FHSA to avoid wasting for his or her first residence. Whereas an 18-year-old in Grade 12 might not want a tax deduction proper now, as they doubtless don’t have loads of revenue, they’ll grasp on to the FHSA deduction and declare it in a future yr after they’re in a better tax bracket and the deduction is value one thing.

Various minimal tax

Lastly, new for 2024 is the up to date alternative minimum tax (AMT) regime, which imposes a minimal stage of tax on taxpayers who declare sure tax deductions, exemptions or credit to scale back the tax that they owe to very low ranges. Beneath the AMT system, there’s a parallel tax calculation that enables fewer deductions, exemptions, and credit than beneath the common revenue tax calculation. If the quantity of tax calculated beneath the AMT system is greater than the quantity of tax owing beneath the common tax system, the distinction owing is payable as AMT for the yr.

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The excellent news is that the brand new AMT will solely have an effect on taxpayers whose taxable revenue in 2024 is over $173,205. However, for those who’re in that tax bracket, and anticipate to say giant tax deductions in your 2024 return, similar to loss carryforwards from prior years, or vital deductible curiosity expense, you’d higher communicate to your tax accountant properly earlier than Dec. 31 to benefit from some last-minute planning to scale back or maybe get rid of that AMT chunk for 2024.

Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Property Planning with CIBC Personal Wealth in Toronto. Jamie.Golombek@cibc.com.

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