As we approach the end of 2024, here are some tax tips for consideration.
Investors
Tax-Gain Selling
As of June 25th 2024, the capital gains inclusion rate increased from 50% to 66.67% on gains above $250,000. Individuals and certain trusts are still entitled to the original 50% inclusion rate on the first $250,000 of gains.
Tax-gain selling would involve selling securities in your non-registered account to trigger up to $250,000 of capital gains before year-end, making those gains subject only to the base 50% inclusion rate. Then, you’d repurchase the same asset and reset the ACB to the current market value. Because there is no superficial gain rule on crystalized gains, you wouldn’t have to wait 30 days from the triggering of gains before re-purchasing the same security / securities.
Tax-Loss Selling
This strategy involves selling an investment in a non-registered account that is in a loss position to offset capital gains. You can carry capital losses back to offset gains from up to 3 years prior, apply the capital loss against current-year gains, or carryforward the capital loss to apply against future-year gains.
If you plan to sell and repurchase a security that is in a loss position, you’d have to wait 30 days to repurchase that security. Securities sold at a loss and repurchased within 30 days are considered a “superficial loss” and the capital loss would be denied & added to the ACB of the repurchased security.
The superficial loss rules apply to selling non-registered investments at a loss, contributing to an RRSP or TFSA and then repurchasing the same asset. Careful planning is required to ensure these transfers are made in accordance with the rules.
RRSP Contributions
The 2024 RRSP deadline is March 3, 2025 (March 1st falls on a Saturday). Your 2024 RRSP limit is 18% of your 2023 earned income (to a maximum of $31,560) less any pension adjustments, plus any unused contribution room from prior years, plus any pension adjustment reversals.
Delay RRSP Withdrawals under the HBP or LLP
You can withdraw from your RRSP without taxation under the Home Buyer’s Plan (HBP) or Lifelong Learning Plan (LLP) provisions.
For the HBP, for withdrawals after April 16 2024, the withdrawal limit has increased from $35,000 to $60,000. Under a temporary measure, the usual 2-year grace period before HBP repayments has increased to a 5-year grace period. For HBP withdrawals taken from January 1 2022 to December 31 2025, the first repayment instalment is now due the fifth calendar year following the year you made the withdrawal. For instance, if you made an HBP withdrawal in 2024, you could opt to wait until the 2029 tax year to make your first instalment payment.
For the LLP, you can withdraw up to $20,000 lifetime (max $10,000 a year) for post-secondary education. You’d have to begin repayments 2 calendar years after no longer being a qualified student, or 2 calendar years following the 5th year after your first LLP withdrawal.
With both the LLP and HBP, if you are considering making a redemption from your RRSP in the near-term, waiting until 2025 to process the redemption allows you an extra year of grace period before repayments begin.
TFSA Contributions
The 2024 TFSA contribution room is $7,000, and for people at least 18 years in 2009 and living in Canada since 2009, the lifetime contribution limit is $95,000 up to 2024. On January 1 2025, each Canadian resident at least 18 years of age will receive another $7,000 of TFSA contribution room.
TFSA Withdrawals
Withdrawing funds from a TFSA results in the equivalent amount of TFSA space being created the following January 1st, assuming the withdrawal was not made to correct a prior over-contribution.
If you are planning to make a TFSA redemption in the near-term, redeeming before the end of 2024 would result in a larger amount of space created as of January 1st 2025. This is especially important if you are at or near your lifetime contribution limit. Waiting to redeem until early-2025 would mean you could not re-use that space until 2026.
Pay Investment Expenses
You must make certain expense payments by year-end to claim a tax deduction or credit on your 2024 tax return. This includes investment-related expenses – such as advisor fees or interest paid on money borrowed for investment purposes – in non-registered accounts.
Convert a Portion of RRSP to RRIF Once Turning 65
Once you turn 65, you are eligible to make use of the pension tax credit, which provides a 15% tax credit on up to $2,000 of pension income (not counting CPP or OAS income). If you do not have a workplace pension or are not yet taking your workplace pension, you can redeem $2,000 from your RRIF to make use of the pension tax credit. This is a tax-efficient way to redeem money from your portfolio.
Convert all RRSP to RRIF Once Turning 71
By the end of the calendar year in which you turn 71, you must convert all retirement savings accounts (RRSP, SRSP, LIRA, LRSP, etc) to their retirement income fund equivalents (RRIF, SRIF, LIF, LRIF).
It may be worthwhile to over-contribute to your RRSP in December 2024 before conversion to your RRIF if you have earned income in 2024 that would generate RRSP room for 2025. You would pay a 1% penalty on the over-contribution in December 2024 but your new RRSP room on 2024 earned income would apply starting January 2025, so the penalty tax would cease at that point. Then you could deduct the over-contributed money on your 2025 (or a future year’s) return.
If you have a spouse who is younger than you, then you can simply make use of your 2025 RRSP space via the Spousal RRSP (until your spouse turns 71).
Home Buyers and Owners
First Home Savings Account (FHSA)
If you are a first-time home buyer who is a resident in Canada, and at least 18 years old, you can save for a home purchase via the first truly tax-free account in Canada.
FHSA space only starts accruing the year you open an FHSA. You can contribute $8,000 a year from that point, up to $40,000 lifetime into an FHSA. Contributions generate a tax deduction (like RRSP contributions) that can be used in the current year’s tax return or in a future year. If redeemed to purchase your first home, there is no tax due and no repayment obligation; therefore, it is pre-tax money from contribution all the way through to the home purchase.
Renovations for Home Accessibility
The non-refundable Home Accessibility Tax Credit (HATC) allows seniors and those eligible for disability tax credit (DTC) with certain home renovations. The tax credit is 15% of expenses toward home renovations to help individuals “gain access to, or to be more mobile or functional within, their home, or reduce their risk of harm within their home or from entering their home”. The eligible expense amount is up to $20,000, so the tax saving is up to $3,000.
Make Renovations to Allow Relatives to Live with You
If you’re a homeowner, the Multigenerational Home Renovation Tax Credit (MHRTC), can help with the cost of creating a secondary unit in your home that will be occupied by a relative. The refundable credit is worth 15% of the qualifying expense, to a maximum of $50,000. Therefore, if you spend $50,000 on your renovation, the credit is worth $7,500.
It is worth noting that claiming the MHRTC may affect your principal resident exemption, so it is important to speak with a tax accountant before claiming this credit.
Families with Students
Make RESP Contributions
The Federal Grant (CESG) on qualifying RESP contributions is 20% of the contribution per year, per child, up to $2,500 per year per child. Also, you can “catch up” up to $2,500 per year per child for prior year unclaimed CESG grants.
In BC, once a child turns 6 years old, they are eligible for BCTESG, a one-time $1,200 grant from the BC Government into an RESP.
Make RESP Withdrawals for Students
If your child or grand-child is an RESP beneficiary and they’re attending a post-secondary educational institution in 2024, consider taking Educational Assistance Payments (EAPs) before year-end. Although the EAP is taxable income in the student’s hands, if the student has sufficient personal tax credits, the EAP income will be effectively tax-free. Personal tax credits include the basic personal amount ($15,705 for 2024) plus amounts included on the students T2202 tax slip.
The max EAP that can be taken in the first 13 weeks of post-secondary education is $8,000 for full-time students and $4,000 for part-time students.
Family Members with Disabilities
Contribute to a Registered Disability Savings Plan (RDSP)
RDSPs are tax-deferred savings vehicles for Canadian residents eligible for the Disability Tax Credit (DTC). Up to $200,000 can be contributed into the plan until the beneficiary turns 59, with no annual contribution limit.
All earnings and growth grow on a tax-deferred basis.
The Federal government assistance in the form of Canada Disability Savings Grants (CDSGs), which are based on contributions and Canada Disability Savings Bonds (CDSBs) may be deposited directly into the plan up until the year the beneficiary turns 49. The government may contribute up to a maximum of $3,500 CDSG and $1,000 CDSB per year of eligibility, depending on the net income of the beneficiary’s family.
RDSP holders with shortened life expectancy can withdraw up to $10,000 a year from the RDSP without repaying grants and bonds.
Pay Family Medical Expenses
The Medical Expenses Tax Credit (METC) may be claimed on eligible medical expenses paid during any 12-month period ending in 2024 (or 24-month period if an individual died in the year). The federal tax credit can be claimed on expenses exceeding 3% of your net income or $2,759 for 2024 (whichever is lower). Provincial / Territorial tax credits are also available.
Charitable Giving
Make Charitable Donations
Donations up to $200 a year generate a 15% federal tax credit. For donations above $200 a year, the federal tax credit increases to 29%. Provincial donation credits are also available. The total tax credit (federal plus provincial) may be up to 55% once total annual donations exceed $200 a year.
To claim a donation credit for 2024, you must make your donation by year-end.
Gifts “In-Kind”
Gifting publicly-traded securities (mutual funds, stocks, segregated funds, etc) “in-kind” from a non-registered account while the security has accrued capital gains entitles you to a tax receipt for the fair market value of the security being donated, and it eliminates the capital gains tax as well. So, you generate federal & provincial donation tax credits and you pay no capital gains tax on the donated security. Such in-kind donations must be made to a registered charity or foundation, and you should plan these donations well ahead of year-end to ensure the security donation can be received by the charity before year-end.
Individuals with Changes to Tax Rates
If you expect your income tax rate to change significantly from 2024 to 2025 – either upward or downward – there can be planning areas around the tax rate change and it may be worthwhile to shift income / expenses between 2024 and 2025 where possible and where practical.
If your income in 2024 will be lower than in 2025, it may be worth crystallizing capital gains while in a lower tax bracket (for instance, making use of the tax-gain selling strategy) or taking bonuses in 2024 versus 2025, where possible. It may also be worth deferring deductible expenses until 2025, again where feasible.
If you expect your 2025 income to be lower than in 2024 (for instance, due to pending retirement, or because of a one-off sale such as selling an investment property), you may wish to defer income into 2025 where possible. For instance, waiting until 2025 for the investment property sale, waiting to trigger capital gains, etc.
Sources: CIBC