Year-end tax-saving tips for Canadians for 2024

Cut back taxes within the present yr

There are a number of methods to do that:

• Fill tax effectivity gaps: Many Canadians have unused tax-advantaged financial savings room in registered accounts—and this can be a actual miss. For instance, you possibly can put money into your registered retirement savings plan (RRSP) to scale back web earnings and thereby not simply cut back your taxes payable but in addition enhance social advantages you could qualify for, such because the Canada Child Benefit (CCB), the GST/HST Credit score and the Canada Dental Care Plan. Open a primary home savings account (FHSA) in the event you qualify to avoid wasting as much as $8,000 a yr for a brand new residence. You should open the account to create the annual room, so achieve this earlier than yr finish, even in the event you can solely put a small amount of cash apart. 

• Plan taxes on capital good points. New increased capital gains inclusion rates (66.7%) will apply to capital good points over $250,000 per particular person, generated after June 24, 2024. Under this the inclusion charge stays 50%. This may have an effect on property in non-registered accounts, private residences together with cottages, rental properties or sure enterprise property. On the time of writing the new capital gains rules had been anticipated to be handed into legislation. 
• Plan enterprise earnings ranges. Unincorporated enterprise house owners might want to pay Canada Pension Plan (CPP) premiums on the finish of the yr with their taxes. The prices are going up steeply; they will exceed $8,000 a yr when web earnings is over $70,000. But it surely’s doable to scale back web earnings with a deduction for capital value allowance (CCA) on a brand new asset buy, equivalent to a automotive or new furnishings. Test this out with your advisor.  
• Handle tax installment funds: For those who owed $3,000 or extra whenever you filed your taxes final yr and in both of the 2 previous tax years, you’d have been requested by CRA to make quarterly tax installment funds. Farmers and fishers make that fee solely as soon as, on the finish of December. However what in case your earnings has dropped this yr? It will not be essential to make the December fee. Use the money circulate to make tax-wise investments earlier than yr finish as an alternative.

Get well taxes beforehand paid

Most individuals are unaware that you may alter for errors or omissions on prior filed returns as much as 10 years again. So, for 2024, which means 2014 to 2023. It will probably actually pay to look again and evaluation prior filed returns for missed tax credit like medical bills, tuition charges, charitable donations or profitable deductions like youngster care, shifting bills or funding carrying costs. You possibly can carry again capital losses unused in a single tax yr to offset capital good points earnings within the earlier three years. You can even carry ahead unused capital losses indefinitely into the longer term. Charitable donations made in a single tax yr may be carried ahead as much as 5 years.

Set your self as much as decrease taxes sooner or later 

This entails understanding the carry-over provisions described above. Equally essential is understanding what tax bracket your earnings falls into. The Canadian tax system is predicated on progressivity: the extra you earn, the upper the tax charge you pay.  That’s decided by varied tax charges utilized to earnings brackets, proven beneath.   

Federal Tax Brackets and Charges for 2024 and projected for 2025 

If there may be an earnings hole earlier than the subsequent tax bracket, think about “topping earnings up.” Seniors might make an additional withdrawal from their registered retirement income fund (RRIF), for instance. Others would possibly think about producing some capital good points from the sale of economic property held outdoors of a registered account.  

Be aware, although, that prepaying tax might entice quarterly installment funds. Nevertheless, as a rule, averaging out earnings from yr to yr is helpful, particularly in the event you anticipate to generate a big earnings supply, for instance from a sale of an asset, sooner or later.

If any earnings has spilled into the subsequent tax bracket, think about decreasing it with an RRSP contribution or performing some tax-loss harvesting to scale back capital good points earnings. You may also have the ability to cut up sure earnings sources (like a pension) together with your partner.  

Tax financial savings with registered accounts

Lastly, arrange your future with tax-advantaged accounts beneath. They don’t generate a tax deduction this yr however they’ll ship on turbo-charging your future wealth:

• High up your TFSA: All you could be is a minimum of 18 and a resident of Canada to have a tax-free savings account (TFSA). As talked about, the contributions aren’t deductible, however on withdrawal there isn’t a tax on both the earnings or the principal. This can be a nice dipping pot for emergencies, but in addition doubtlessly a part of a million-dollar retirement plan, relying on how lengthy the cash stays within the plan and your charges of return. 
• Maximize schooling financial savings in RESPs. To get the associated Canada Training Financial savings Grant and Canada Studying Bond from the federal authorities, you could contribute to a registered education savings plan (RESP) for a kid. The account can earn a CESG of as much as $600 annually whenever you make investments as much as $2,500 (the grant is income-tested). The CLB can also be based mostly in your web earnings; it attracts $500 within the yr the RESP is opened after which $100 a yr till the kid turns 15, for a complete of $2,000. So it’s essential to file a tax return annually and cut back your web earnings with allowable deductions like youngster care and FHSA/RRSP contributions. 
• Maximize RDSPs contribution room: Registered disability savings plans (RDSPs) complement pension for disabled individuals in a household. Once more, relying on earnings ranges, the RDSP contribution will entice profitable authorities grants and bonds.
• Seek the advice of with a tax specialist to discover extra. That’s essential as a result of there are a number of new quirks this yr, together with changes to the Alternative Minimum Tax (AMT) which impacts these within the fourth tax bracket: above $173,206 in 2024 and $177,883 in 2025.   

12 months-end tax planning questions

This text received’t reply all of your year-end tax questions. So I’ve listed extra tax-planning questions you need to be asking your self and your advisor, each December (or sooner, actually).