The past year has been challenging for Canada in terms of macroeconomics, the business environment for small enterprises, and household financial arrangements. These challenges persist into 2024, and the new year continues to be filled with uncertainties. As usual, let’s briefly summarize the tax changes for 2024 to help individuals and businesses make appropriate financial plans.
Increase in Basic Personal Amount: In 2024, the federal personal tax exemption will increase to $15,705, effectively reducing federal tax by $105.75. However, for individuals earning over $173,205, the additional personal tax exemption (beyond the inflation adjustment) will decrease, and for those earning over $246,752, it will be reduced to zero, with the corresponding personal tax exemption being $14,156. Ontario’s personal tax exemption for 2024 is $12,399.
CPP (Canadian Pension Plan) Contribution Rates Continue to Rise: As part of the enhanced CPP reform plan, the contribution rate for individuals and companies remains unchanged at 5.95% in 2024. The maximum annual contribution for regular employees is $3,867.50, and for self-employed individuals, it’s $7,735, with the maximum pensionable earnings being $68,500. Starting from January 1, 2024, CPP will introduce a second contribution rate and earnings ceiling, affecting workers earning above the first ceiling. For 2024, the second ceiling is set 7% higher than the first, and in 2025, it will be 14% higher. The portion of earnings between $68,500 and $73,200 will be subject to the “second CPP contribution,” with a rate of 4% for employees and employers, capping at $188 each. The rate for self-employed individuals is 8%, with a maximum contribution of $376.
EI (Employment Insurance) Premium Rate Increase: The EI premium rate will increase from 1.63% in 2023 to 1.66% in 2024. The maximum annual EI contribution will be $1,049.12, with corresponding maximum annual insurable earnings of $63,200.
Increase in TFSA Contribution Limit: The contribution limit for the Tax-Free Savings Account (TFSA) will increase by $500 to $7,000 in 2024. The cumulative maximum contribution limit is $95,000. The maximum contribution for individual RRSPs in 2024 is $31,560.
Federal Government Announces Cancellation of Tax Deductions for Certain Short-Term Rental Property Expenses: Effective January 1, 2024, the federal government will eliminate tax deductions for certain expenses related to short-term rentals. Some provinces and municipalities have already imposed bans or restrictions on short-term rentals. The federal government’s move aims to encourage the conversion of nearly 19,000 homes in major metropolitan areas like Montreal, Toronto, and Vancouver, currently used for short-term rentals, into long-term rentals to alleviate housing crises in these areas.
Reform of the Alternative Minimum Tax (AMT) System Starting in 2024: This reform will primarily affect high-income individuals. The AMT ensures that taxpayers who significantly reduce their tax bill through specific deductions, exemptions, or credits pay a minimum level of tax. Changes include increasing the AMT rate, raising the exemption amount, and expanding the AMT base by limiting certain tax breaks. If your taxable income in 2024 exceeds $173,205, and you have certain low-tax-rate incomes or tax-reducing deductions and credits, your AMT may be higher than in 2023.
Federal Government Cancels GST/HST Sales Tax on Professional Services Provided by Psychotherapists and Counseling Therapists: Announced in the fall economic statement, this move aims to increase the affordability of mental health counseling and therapy and encourage socially beneficial actions through the tax system.
Mandatory Reporting of “Bare Trusts” in 2024 Tax Returns: Unlike explicitly established trusts, bare trusts often inadvertently form, for example, when parents co-sign a mortgage with their children or include them as partial property owners. These trusts do not generate reportable income in a specific tax year, but starting in 2024, Canadians must file a T3 tax return, reporting trustees, beneficiaries, and settlors for each trust in the previous year. Failure to report could result in a fine of $2,500 or 5% of the trust property’s value, whichever is higher.
Little Change in Small Business Taxation: The federal small business tax rate remains unchanged at 9% for profits under $500,000, with Ontario’s rate at 3.2%, leading to a combined rate of 12.2%. However, due to the second CPP contribution, the business portion will also increase, adding to the burden of businesses and individuals. Small business owners should consider increasing dividends, but this requires considering personal and family circumstances and consulting professionals for a tailored plan.
Enhanced HST Rebate: To address Canada’s increasingly severe housing crisis, the federal and Ontario governments have successively introduced HST rebate programs for developers of long-term rental properties. Developers who meet the criteria can receive a 100% HST rebate. For detailed information on the enhanced HST refund, you can refer to the earlier article “Enhanced HST Rebate in Ontario: A Boon for Multi-Unit Rental Property Developers.”
CEBA Loan Repayment Deadline: Small businesses that took out CEBA loans during the pandemic must repay $40,000 by January 18, 2024, to benefit from a $20,000 exemption.
Considering trends from the second half of 2023, it’s foreseeable that CRA will intensify tax audits on businesses and individuals, particularly self-employed individuals. Business operators and self-employed persons should standardize their bookkeeping and record-keeping practices. The following image shows the 2024 Ontario personal tax rate table for reference.