Tax tips for 2024 year-end

As we close out 2024, now is the time to review your financial strategies and take action to reduce taxes and prepare for the year ahead. Whether you’re an individual taxpayer, business owner, or employer, the tips below will guide you through opportunities for tax savings, compliance, and financial optimization.

For Individuals: Maximize Savings and Reduce Taxes

1. Optimize Investment Gains and Losses

• Capitalize on the Capital Gains Inclusion Rate: The inclusion rate for capital gains was proposed to increase to 66.67% as of June 25, 2024. However, individuals can still benefit from the previous 50% inclusion rate for the first $250,000 of capital gains annually. If you still have not reached $250,000 of cumulative capital gains for 2024, consider crystallizing gains to reach this threshold before year-end to take advantage of this lower capital gain inclusion rate.
• Losses carryforward: If you have capital losses carryforward from prior years, you may consider selling some of the winners in your non-registered accounts to utilize these loss carryforwards in 2024.  
• Tax-Loss Selling: If you have investments with accrued losses, you may consider realizing these accrued losses to offset against your capital gains, such as selling underperforming investments. Be cautious with the “superficial loss” rule, which can disallow losses if you repurchase the same or similar securities within 30 days of selling. Moreover, be cautious with selling foreign investments as currency fluctuations may result in unexpected gains or losses.

2. Maximize Tax-Sheltered Accounts

• RRSP Contributions: Contributions for 2024 can be made until March 3, 2025. Contributions are deductible up to 18% of your prior year’s earned income (to a max of $31,560). If you are unsure of your RRSP contribution room, you can check it on your CRA My Account or on your latest Notice of Assessment.
• Spousal RRSP Contributions: The higher-income spouse can consider making a contribution to a spousal RRSP for future income splitting with a lower-income spouse such that the higher-income spouse can get a deduction when contributing, and the future withdrawals may be taxed in the hands of the lower-income spouse.
• Convert RRSP to RRIF: If you turn 71 this year, ensure final contributions are made and your RRSP is converted to a RRIF by December 31, 2024.
• Overcontribution to RRSP: If you had employment income or business income in the year you turn 71, consider overcontributing to your RRSP in December 2024 by the amount of earned income that will be created on January 1, 2025.  The overcontribution will be absorbed by your new RRSP contribution room, and the tax savings from deducting this contribution will more than offset the nominal overcontribution penalty tax.
• Convert a portion of RRSP to a RRIF at age 65: If you don’t have any pension income and are at least 65 years old (and younger than 71 years old), you may consider transferring $14,000 from your RRSP to your RRIF at the age of 65, and then consider withdrawing $2,000 a year from your RRIF from age 65 to 71 (a total of 7 years) to benefit from the pension income credit, which would allow you to receive $2,000 RRIF annually tax free.
• TFSA Contributions: The 2024 contribution limit is $7,000. If you’ve never contributed, your total room could be as high as $95,000, allowing significant tax-free growth. You should plan withdrawals carefully to avoid overcontribution penalties.

3. Tax Benefits for Homeowners

• First Home Savings Account (FHSA): Contribute up to $8,000 annually (up to $16,000 with carryforward) to save for your first home. Contributions are tax-deductible, and withdrawals for home purchasing are tax-free.
• Home Buyers’ Plan (HBP): Withdraw up to $60,000 from your RRSP tax-free to purchase your first home, thanks to the increased limit effective April 6, 2024. You must start repaying the withdrawal within five years under a temporary extension. If possible, delay withdraws until early 2025 to extend the purchase and repayment timeline by an additional year.
• Home Accessibility Tax Credit (HATC): Seniors and individuals with disabilities can claim 15% of eligible renovation expenses up to $20,000 to make their homes safer and more accessible. Eligible expenses paid by December 31, 2024 could yield up to $3,000 in tax credits.
• Multigenerational Home Renovation Tax Credit (MHRTC): This refundable credit supports creating secondary units for qualifying relatives. You can claim 15% of renovation costs, up to $50,000 for a maximum credit of $7,500. Expenses must be incurred, and renovations must be completed in 2024 to qualify for this refundable credit. Claiming the MHRTC may affect your ability to claim the principal residence exemptions when you eventually sell your property. Consider speaking to your Welch advisor before you undertake the renovation.
• First-Time Home Buyer’s Tax Credit: If you purchased your first home in 2024, you can claim this non-refundable tax credit worth up to $1,500. You need to ensure that this home qualifies as your principal residence, and file this claim as part of your 2024 personal tax return.

4. Education and Disability Savings

• RESP Contributions and withdrawals: Secure up to $500 annually in Canada Education Savings Grants (CESG) with a $2,500 contribution for each child under 18 by December 31.Consider having Educational Assistance Payments (EAPs) made through the RESPs before December 31, 2024 for your (grand)child who is a beneficiary of the plan if they attend a post-secondary institution in 2024. The maximum EAPs allowed for a 13-week education is $8,000 for a full-time student and $4,000 for a part-time student.
• RDSP Contributions: Contribute to a Registered Disability Savings Plan (RDSP) to maximize federal grants and bonds. Eligible individuals should act before December 31, 2024 to benefit from this year’s contributions.

5. Charitable Donations

• Donating to a registered charity is a great way to reduce your taxes. Donations of cash or gifts “in-kind” of publicly traded securities are eligible for tax credits of up to 55% , depending on your province or territory of residence, once total annual donation amounts exceed $200 in a calendar year. The last day to make a donation for 2024 is December 31^st, and be sure to ask for an official charitable receipt.
• The capital gains from gifting publicly traded securities such as stocks or mutual funds with accrued gains are not subject to tax, while you still receive a tax receipt for the full fair market value of the securities you donated.
• If your income is over $173,205 and you are planning to make significant charitable donations, be aware that changes to the 2024 Alternative Minimum Tax (AMT) rules may impact your tax benefits. Under the new rules, only 80% of the donation tax credit is allowed for AMT calculations, compared to the full 100% previously permitted. Additionally, for in-kind donations of publicly traded securities, 30% of the capital gains on these securities will now be included in AMT calculations whereas previously no portion of these gains was included. Please consult with your Welch advisor for more information on AMT changes that may have an impact on your taxes.

6. Alternative Minimum Tax (AMT)

• Significant changes to the AMT system were introduced in 2024, including an increased AMT rate, a higher AMT exemption, and an expanded AMT base that limits specific deductions, exemptions and credits. These updates may result in a higher AMT liability in 2024, particularly for individuals with taxable income exceeding $173,205 who benefit from lower-taxed income sources or significant deductions, such as:
  • capital gains,
  • stock options,
  • Canadian dividends,
  • unused non-capital losses, net capital losses, or limited partnership losses carried forward from previous years,
  • non-refundable tax credits, such as the donation tax credit, and
  • various deductions, such as moving, child care, employment and interest/financing costs.

Please consult with your Welch advisor for more information if you think that you may be impacted by any of these AMT changes.

For Business Owners and Employers: Optimize Corporate Tax Strategies

1. Owner-Manager Compensation Strategies

• For tax efficiency, many owners choose a combination of salary and dividends. Paying yourself a salary allows you to contribute to Canada Pension Plan and RRSPs, while dividends are generally taxed at a lower rate. However, given the changes to AMT and other recent tax reforms, review your personal and business tax situation with your Welch advisor to determine your optimal strategy.

2. Contributions to Employee Benefits and Retirement Plans

• Business owners can make contributions to employee retirement plans and group benefit programs, and these contributions are tax-deductible. The year-end is a good time to review your company’s employee benefit plans, especially if you haven’t fully utilized your tax deductions. If you offer a Group RRSP or other retirement savings plans to employees, consider making contributions before December 31^st to help reduce your business’s taxable income for the year.

3. Plan Around the Small Business Deduction (SBD)

• If your corporation earns more than $50,000 of passive investment income in a taxation year, the SBD limit could be reduced for the following taxation year. You may consider deferring passive income by realizing capital gain in 2025. Alternatively, an Individual Pension Plan or corporately owned exempt life insurance might be appropriate, since income earned in these plans does not impact access to the SBD. Speak to your Welch advisor to discuss whether these strategies may be appropriate in your situation.

4. Capital Expenditures

• Review your needs for capital purchases at year-end to determine whether it makes sense to make the purchase before the year-end or defer to next year. You are entitled to claim capital cost allowance (CCA) on depreciable capital property if the property is purchased and available for use before the end of the year.
• The accelerated investment incentive property (AIIP) rules allow for faster CCA claims on most new depreciable capital property acquired after November 20, 2018 and available for use before 2028.
• The temporary immediate expensing rules allow an unincorporated business to fully expense eligible depreciable asset purchases of up to $1.5 million annually for property acquired after December 31, 2021, and available for use before January 1, 2025. However, certain long-term assets like buildings and intangibles such as goodwill are excluded.
• Effective April 16, 2024, the federal government has proposed immediate expensing for productivity-enhancing assets (e.g., patents, network infrastructure, and data-processing systems) available for use before 2027. Assets available for use after 2026 and before 2028 will still benefit from accelerated investment incentive rules.

5. Managing Capital Dividend Account (CDA) and Tax-Loss Selling

• Before engaging in selling losers in your investment portfolio, review your corporation’s Capital Dividend Account (CDA) to determine if there is an existing positive balance. The CDA is a notional account that tracks the non-taxable portion of capital gains and certain other amounts. This balance allows corporations to pay tax-free capital dividends to shareholders, provided the dividends do not exceed the CDA balance. It is important to note that realizing the net capital losses will reduce the CDA balance and may eliminate the ability to pay capital dividends, so you should consider paying capital dividends to the extent possible before triggering capital losses Consult with your Welch advisor to review your corporation’s CDA balance.

6. Loss Utilization within a Group

• If you operate multiple corporations within a group, you may have one or more profitable entities and others experiencing losses. The CRA generally allows loss utilization within a related corporate group through specific strategies. There may be strategies to allow a corporate group in this situation to achieve better overall tax and financial results. Given the complexity of corporate reorganizations and the potential for unexpected tax implications, please consult with a tax specialist before pursuing any loss utilization strategies.

Final Thoughts

Year-end tax planning is all about being proactive and making the most of available deductions, credits and strategies. Whether you’re an individual taxpayer or own a corporation, taking a little time now to consider these matters can result in big savings come tax time.

As always, it’s a good idea to work with a tax professional or accountant to make sure that you’re making the best decisions for your specific situation. With a bit of preparation, you can end the year on a strong financial note.