Yr-end tax ideas: Right here’s what is exclusive 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 price range proposed a rise to the capital features inclusion fee for features 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 features yearly. The rise within the tax fee on capital features over $250,000 is about 9 share factors, relying in your province or territory of residence.

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Whereas the laws hasn’t but been handed, it’s extensively anticipated to finally obtain royal assent, and be efficient as of this June 25. For buyers with important accrued capital features of their portfolios, a brand new tax planning possibility exists for 2024.

Think about whether or not it’s price crystalizing as much as $250,000 of capital features 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. Word that, in contrast to for loss crystallization, there’s no equal superficial acquire rule, that means you don’t want to attend 30 days to purchase again the inventory on which you crystalized a capital acquire.

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, think about your anticipated fee of return and time horizon. For instance, if the tax that you just don’t pay for 2024 was invested to earn six per cent capital features, compounded yearly, it could 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 dwelling financial savings accounts

For those who’re a first-time homebuyer who’s a resident of Canada and not less than 18, the first dwelling financial savings account (FHSA) means that you can 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 just 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 just open an FHSA, you’ll be able to contribute (or switch from a registered retirement financial 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.

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

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It’s essential 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 if you happen to don’t have the funds to contribute the total $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 additional $8,000 of room, that means that you possibly can contribute as much as $16,000 subsequent yr.

The most effective 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 dwelling, together with withdrawals of any funding earnings or development earned within the account, are non-taxable, similar to tax-free financial savings account withdrawals.

And, if you happen to select to not use the FHSA to purchase a primary dwelling, 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 all the honest market worth of the FHSA to your RRSP or registered retirement earnings 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 dying).

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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) could want to think about gifting as much as $8,000 to every youngster or grandchild in order that they’ll open up their very own FHSA to save lots of for his or her first dwelling. Whereas an 18-year-old in Grade 12 could not want a tax deduction proper now, as they possible don’t have lots of earnings, they’ll hold on to the FHSA deduction and declare it in a future yr after they’re in a better tax bracket and the deduction is price one thing.

Different minimal tax

Lastly, new for 2024 is the up to date various minimal tax (AMT) regime, which imposes a minimal stage of tax on taxpayers who declare sure tax deductions, exemptions or credit to cut back the tax that they owe to very low ranges. Underneath the AMT system, there’s a parallel tax calculation that enables fewer deductions, exemptions, and credit than beneath the common earnings 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 earnings in 2024 is over $173,205. However, if you happen to’re in that tax bracket, and anticipate to assert giant tax deductions in your 2024 return, similar to loss carryforwards from prior years, or important deductible curiosity expense, you’d higher converse to your tax accountant properly earlier than Dec. 31 to benefit from some last-minute planning to cut back or maybe get rid of that AMT chew 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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