CRA UPDATES - PERSONAL TAXES

TAX UPDATES FOR 2024

 Changes to Capital Gains Inclusion Rate

The capital gains inclusion rate will be increased from 1/2 to 2/3 for capital gains realized on or after June 25, 2024.

For individuals, the 1/2 inclusion rate will be available for capital gains realized in the year up to $250,000. The $250,000 threshold will be applied to capital gains realized through a partnership or trust, net of amounts such as current-year capital losses, capital losses of other years applied, and capital gains subject to lifetime capital gains exemption.

For the 2024 tax year, transition rules will be introduced to separately identify capital gains and losses realized before and after the effective date. The annual $250,000 threshold for individuals will not be prorated in 2024 and will apply against capital gains realized after June 25, 2024 only.

For an individual at the top marginal tax bracket in Ontario, the first $250,000 of capital gains will be taxed at a combined federal and provincial rate at 26.8% (unchanged). Additional capital gains over and above $250,000 will be taxed at a combined rate at 35.7%. For Canadian-Controlled Private Corporations (“CCPC”), the effective tax rate on capital gains (before any dividend refunds) is expected to increase from 25% to 33%.

Changes to Stock Option Deduction

To align with the revised new capital gains inclusion rate, the employee stock option deduction would be reduced from 1/2 to 1/3 of the taxable benefit. On the other side, the taxpayer would be entitled to a deduction of 1/2 of the taxable benefit up to a combined limit of $250,000 for both employee stock options and capital gains.

Lifetime Capital Gains Exemption

The Lifetime Capital Gains Exemption (LCGE) is set to increase to $1,250,000 applicable to dispositions on or after June 25, 2024.  The 2024 LCGE is currently $1,016,836, which would be effective for dispositions prior to or on June 24, 2024.

Canadian Entrepreneurs Incentive

The budget introduces a new Canadian Entrepreneurs Incentive in an effort to promote entrepreneurship within Canada.  This new incentive will allow individual taxpayers to apply a reduced capital gains inclusion rate of 33% on certain dispositions (versus 50% currently, and the proposed rate of 66.7%).  This measure will be phased in gradually over 10 years at a rate of $200,000 per year until the maximum of $2,000,000 is reached on Jan. 1, 2034. This incentive would be applicable to dispositions on or after January 1, 2025, that meet certain conditions. Interestingly, these conditions include the taxpayer being a founding investor, having ownership of the shares for at least 5 years, and being actively involved in the business for a minimum of 5 years preceding the disposition.

Alternative Minimum Tax

The budget indicates the government is proceeding ahead with the previously proposed changes to the Alternative Minimum Tax (AMT) regime and rules.  The budget proposes for the inclusion rate of donation tax credits be increased to 80%, from the previously proposed 50%.  This is a positive change for individuals engaged in charitable or philanthropic endeavors because it will result in less AMT payable, all else equal.

Home Buyer’s Plan

The Home Buyers’ Plan (HBP) is a beneficial program that allows eligible Canadians to withdraw money from their Registered Retirement Savings Plans (RRSPs) tax-free to purchase or build a first home, or a home for a disabled individual.

Budget 2024 includes a proposal to raise the withdrawal limit under the HBP from $35,000 to $60,000. This increase would apply not only to first-time homebuyers but also to those withdrawing funds to purchase or build a home for a disabled individual. The adjustment aims to provide greater financial flexibility and support for Canadians looking to enter the housing market or assist a disabled family member, reflecting the rising costs of real estate.

Budget 2024 also suggests that for those making their first withdrawal between January 1, 2022, and December 31, 2025, the repayment period would now commence in the fifth year following the year of the first withdrawal, instead of the second year under current rules. This amendment aims to provide additional financial relief to new participants during the initial years following their home purchase.

Canada Child Benefit

The budget proposes an extension of the Canada Child Benefit eligibility period by six months following a child’s death for individuals who would have been eligible to receive the benefit for that child. This change, effective for deaths occurring after 2024, will also apply to the Child Disability Benefit, offering continued financial support during a difficult period for grieving families.

Disability Supports Deduction

The budget proposes an expansion of the eligible expenses for the Disability Supports Deduction for individuals starting in the 2024 tax year. The deduction assists individuals with impairments by allowing deductions for expenses that help them earn business income, employment income or attend school. Under the new guidelines, the following expenses would qualify for this deduction, provided specific conditions are met:

• For those with severe and prolonged impairment in physical functions, expenses such as ergonomic work chairs and bed positioning devices will be deductible.
• For individuals with either physical or mental function impairments, the costs for alternative input devices and digital pen devices will now be eligible.
• Expenses related to navigation devices for individuals with vision impairments will also qualify.
• Costs associated with memory or organizational aids for those with mental function impairments are included.

Interest Deductibility Limits – Purpose-Built Rental Housing

The excessive interest and financing expenses limitation (EIFEL) rules were introduced in Budget 2021 to limit the amount of net interest and financing expenses that may be deducted by certain taxpayers.

The Budget 2024 provides an elective exemption for interest and financing expenses incurred before January 1, 2036 in respect of the arm’s length financing used to build or acquire eligible purpose-built rental housing in Canada.

For the purpose of EIFEL rules, the eligible purpose-built rental housing would be a residential complex:

• with at least four private apartment  units (i.e., a unit with a private kitchen, bathroom, and living areas), or 10 private rooms or suites; and
• in which at least 90 per cent of residential units are held for long-term rental.

This change would apply to taxation years that begin on or after October 1, 2023.

Accelerated Capital Cost Allowance

The budget proposes to provide an accelerated CCA of 10% (currently 4%) for new eligible purpose-built rental projects that begin construction on or after April 16, 2024 and before January 1, 2031, and are available for use before January 1, 2036. The eligible purpose-built rental property for the new accelerated CCA shares the same definition as the EIFEL rules.

The budget highlights that the conversion of existing non-residential real estate into a residential complex and a new addition to an existing structure would be eligible if the conditions above are met. However, renovations of existing residential complexes would not be eligible for the accelerated CCA.

Cracking Down on Short-Term Rentals

In response to the Canadian housing demand, the budget confirms that, as of January 1, 2024, income tax deductions claimed by short-term rental operators that do not comply with the relevant provincial or municipal laws will be denied. By denying income tax deductions, the government is removing the profit incentive for short-term rental operators in the provinces and territories that have restricted short-term rentals.  Non-compliant short-term rental operators would effectively be subject to income tax based on their gross revenues.

Electric Vehicle Supply Chain investment tax credit

The budget announces that the government plans to bring in a new 10% Electric Vehicle Supply Chain investment tax credit on the cost of buildings used in major parts of the electric vehicle supply chain. The investment tax credit is applicable to businesses that invest in Canada across the following supply chain segments:

• Electric vehicle assembly;
• Electric vehicle battery production; and
• Cathode active material production.

Canada Carbon Rebate for Small Businesses

The budget introduces a new refundable tax credit called the Canada Carbon Rebate for Small Businesses. This tax credit is available to Canadian-controlled private corporations (CCPC) that meet specific criteria as below:

• For the fuel charge years from 2019-2020      to 2023-2024, eligible businesses must file their 2023 tax return by July 15, 2024. For subsequent fuel charge years, the tax return must be filed  for a taxation year that ends within the calendar year when the fuel  charge year begins.
• The corporation must have no more than  499 employees throughout Canada during the calendar year in which the fuel  charge year starts.

The amount of the tax credit for each applicable fuel charge year is calculated based on the number of employees the corporation has in each province during that calendar year, multiplied by a payment rate specified by the Minister of Finance for each province for that fuel charge year. The CRA will automatically calculate and issue the tax credit to qualifying corporations.

Working Tax Payers:

Maximum RRSP contribution: The maximum contribution for 2024 is $31,560; for 2023, it’s $30,780. The 2025 limit is $32,490.

TFSA limit: In 2024, the annual limit is $7,000, for a total of $95,000 for someone who has never contributed and has been eligible for the TFSA since its introduction in 2009. The annual limit for 2023 is $6,500, for a total of $88,000 in room available in 2023 for someone who has been eligible since 2009.

Maximum pensionable earnings: For 2024, the maximum pensionable earnings amount is $68,500 (up from $66,600 in 2023), and the basic exemption amount remains $3,500. New for 2024, earnings between $68,500 and $73,200 will subject to a second tranche of CPP contributions.

Maximum EI insurable earnings: The maximum annual insurable earnings (federal) for 2024 is $63,200, up from $61,500 in 2023.

Prescribed rates: The prescribed rate on loans to family members will be 6% in Q1 2024, and the interest rate Canadians must pay on overdue tax will be 10%. That’s up from 5% and 9%, respectively, in Q4 2023.

Lifetime capital gains exemption: The lifetime capital gains exemption is $1,016,836 in 2024, up from $971,190 in 2023.

Home buyers’ amount: A client who bought a home may be able to claim up to $10,000 of the purchase cost, and get a non-refundable tax credit of up to $1,500.

Medical expenses threshold: For the 2024 tax year, the maximum is 3% of net income or $2,759, whichever is less. For 2023, the max is 3% or $2,635.

Basic personal amount: The basic personal amount for 2024 is $15,705 for taxpayers with net income of $173,205 or less. At income levels above $173,205, the basic personal amount is gradually clawed back until it reaches $14,156 for net income of $246,752. The basic personal amount for 2023 ranges from $13,520 to $15,000.

Elderly Tax Payers:

Age amount: Clients can claim this amount if they were aged 65 or older on Dec. 31 of the taxation year. The maximum amount they can claim in 2024 is $8,790, up from $8,396 in 2023.

OAS recovery threshold: If your client’s net world income exceeds $90,997 in 2024 or $86,912 in 2023, they may have to repay part of or the entire OAS pension.

Lifetime ALDA dollar limit: The limit is $170,000 for 2024 and $160,000 for 2023.

TAX PAYERS WITH DEPENDANTS

Canada caregiver credit: A client with a dependant younger than 18 who’s physically or mentally impaired may be able to claim up to an additional $2,616 in 2024 and $2,499 in 2023 in calculating certain non-refundable tax credits. For infirm dependants 18 or older, the amount for 2024 is $8,375 and the 2023 amount is $7,999.

Disability amount: This non-refundable credit is $9,872 in 2024 ($9,428 in 2023), with a supplement up to $5,758 for those under 18 ($5,500 in 2023) that is reduced if child care expenses are claimed.

Child disability benefit: The child disability benefit is a tax-free benefit of up to $3,322 in 2024 ($3,173 in 2023) for families who care for a child under 18 with a severe and prolonged impairment in physical or mental functions.

Canada child benefit: In 2024, the maximum CCB benefit is $7,787 per child under six and up to $6,570 per child aged six through 17. In 2023, those amounts are $7,437 per child under six and up to $6,275 per child aged six through 17.

Federal bracket thresholds will be adjusted higher in 2024 by 4.7%.

• The 33.0% tax rate begins at taxable income of over $246,752, up from $235,675 in 2023.
• The 29.0% tax rate begins at taxable income of over $173,205 up from $165,430 in 2023.
• The 26.0% tax rate begins at taxable income of over $111,733 up from $106,717 in 2023.
• The 20.5% tax rate begins at taxable income of over $55,867, up from $53,359 in 2023.
• Income up to $55,867 is taxed at 15.0%.

Previous Updates:

TAX UPDATES FOR 2023

First Home Savings Accounts (FHSA): Legislation to create the new tax-free FHSA was recently passed, paving the way for it to be launched as early as April 1, 2023. This new registered plan gives prospective first-time homebuyers the ability to save $40,000 on a tax-free basis towards the purchase of a first home in Canada.
Like a RRSP, contributions to an FHSA will be tax deductible, but withdrawals to purchase a first home, including from any investment income or growth earned in the account, will, like a TFSA, be non-taxable. The new legislation confirms that a first-time homebuyer can use both the FHSA and the existing Home Buyers’ Plan to purchase their first home

Multigenerational Home Renovation Tax Credit: Jan. 1 also marks the beginning of this new credit, which is equal to 15 per cent of eligible expenses (up to $50,000) incurred for a qualifying renovation that creates a secondary dwelling to permit an eligible person (such as a senior or a person with a disability) to live with a relative.

The TFSA limit has been increased

The TFSA contribution limit has increased to $6,500 for the year. This means that if you’ve had an account since 2009, were 18 years of age and have been a resident of Canada throughout that period, the cumulative total you can have in your TFSA is now $81,500.

New OAS limit amounts

The OAS is designed to provide retirees with a source of income to support their retirement. However, if your income is over certain limit amounts, you might find your OAS amount reduced, and even canceled entirely.

For the 2022 tax year, if your taxable income was over $81,761, you would need to repay some of your OAS. Similarly, if your taxable income was over $134,626, you would not have received any OAS payments. Thanks to the CRA’s new Affordability Plan, seniors aged 75 and over received an automatic 10% increase of their Old Age Security pension, as of July 2022.

First-time home buyers’ tax credit – The amount used to calculate the first-time home buyers’ tax credit has increased to $10,000 for a qualifying home purchased after December 31, 2021.

Home accessibility tax credit – For 2022 and later tax years, the annual expense limit of the home accessibility tax credit has increased to $20,000.

Climate action incentive payment (CAIP) – If you are eligible, you will automatically get the CAIP four times a year. Since it generally takes two weeks to process electronic returns, we recommend that you and your spouse or common-law partner (if applicable) file your 2022 returns electronically by March 10, 2023, to help in receiving the April 14, 2023, issuance. If you don’t receive the April issuance, the payment will be included in a subsequent payment after your returns are assessed. For more information, go to Climate action incentive payment.

TAX CHANGES FOR 2022  - Rates and Limits 

• As expected, several tax rates and limits are changing in 2021.  Federal and provincial income tax brackets are increasing to keep up with inflation. 

• Employment Insurance (EI) Premiums are staying steady at 1.58% in 2022. However, maximum insurable earnings will increase from $56,300 to $60,300. 

• Maximum pensionable earnings, the amount used by the government to calculate Canada’s Pension Plan contributions for the year, is increasing to $64,900, up from $61,600 in 2021. Similarly, the employee and employer contribution rates for 2022 will be increasing to 5.70%, up from 5.45% in 2021. 

• In 2022, the annual contribution limit on the Tax-Free Savings Account (TFSA) remains at $6,000, where it’s been since it was upped for the first time in 2019. If you’ve never contributed to the TFSA and you’ve been eligible to contribute since 2009, you now have $81,500 in total contribution room.  As the name implies, your money grows tax-free in the TFSA. What sets it apart from the Registered Retirement Savings Plan (RRSP) is that you don’t have to pay income tax when you cash out your money.

TAX BREAKS FOR PARENTS

• For the 2021-2022 benefit year beginning July 2021, the maximum annual benefit under the Canada Child Benefit is $6,833 for each child under 6 and $5,765 for children aged 6 to 17.  For parents of disabled children under the age of 18, the Child Disability Benefit has increased to $2,915 for the July 2021 to July 2022 benefit period.  

HOME BUYERS' PLAN 

• The Home Buyers’ Plan (HBP) assists first-time homebuyers in attaining a down payment sooner. It allows those buying a home for the first time to withdraw money from their RRSP without paying any tax. Any money borrowed under the HBP must be paid back over 15 years, beginning in the second year after your initial withdrawal was made. Only funds that have been in your RRSP for at least 90 days can be withdrawn as part of the HBP.  After being frozen for several years, the federal government increased the withdrawal limit back in 2019. Now, those eligible to participate in the program can withdraw up to $35,000 from their RRSP, up from $25,000 in previous years. This means that a couple buying a home together could withdraw a combined $70,000 from their RRSPs to buy their first property.

COVID-19  - Credits & Benefits 

• While CERB (the Canada Emergency Response Benefit) no longer exists, a few other pandemic-related benefits have been extended.  For the 2021 and 2022 tax years, employees forced to work from home due to COVID-19 can claim a flat rate tax credit of up to $500. You’re eligible for this credit if you’ve worked from home more than 50% of the time for a period of at least four consecutive weeks.  Eligible expenses include utilities, home internet, rent, and maintenance and repair costs. Commission employees can also claim home insurance, property taxes, and the lease of electronics such as cellphone, laptop, tablet, etc.  The Canada Recovery Sickness Benefit provides up to $500 ($450 after taxes) for workers unable to work because they are sick, need to self-isolate or have an underlying health condition that puts them at greater risk.  Similarly, under the Canada Recovery Caregiving Benefit, anyone who is unable to work because they need to care for a child or family member due to COVID-19 can receive $500 ($450 after taxes) per week, for up to 44 weeks  Keep in mind that while both CRSB and CRCB deduct a 10% tax at source (so the amount you’ll receive is $450), you may still need to pay additional tax come income tax time, depending on your situation. Both programs have been extended to May 7, 2022.