Annual Message From The Partners
How would you sum up the last year in one word? For us, “rollercoaster” comes to mind (lots of other words do also, but those are not as professional). The increasingly unstable political landscape and the ever confusing and infuriating tax changes, combined with the usual challenges of entrepreneurship, made for another interesting year. We continue to be in constant awe of the resilience and creativity of our incredible clients, who navigate this uncertain world with grace and bravery.
We are so privileged for the opportunity to help our clients take stock of each year that passes, reflect on their journeys and dream about the future. We look forward to connecting with many of you in the coming weeks and months.
Thank you very much for your continued loyalty and support. We are thrilled that in the world of so many choices, you are choosing to work with us. We do not take this responsibility lightly.
“We cannot direct the wind, but we can adjust the sails”.
Steve, Ana, Girija, Eric and Daniel
Alternative Minimum Tax (AMT) Changes
Effective January 1, 2024, AMT has undergone significant changes, including:
a. An increase in the AMT rate from 15% to 20.5%.
b. An increase in the basic exemption amount from $40,000 to $173,205.
c. Adjustments to the inclusion rates for certain types of income and deductions:
- Ordinary capital gains are now fully included (100% inclusion), up from 80% in previous years.
- Capital gains on donations of publicly listed securities continue to have a 30% inclusion rate.
- Stock option benefits are now fully included at 100%.
- Net capital losses can only offset 50% of capital gains under AMT rules, compared to 80% previously.
Capital Gains Inclusion Rate Deferral
In 2023, the government proposed an increase to the capital gains inclusion rate from 50% to 66.67% for individuals with capital gains exceeding $250,000, with an effective date of June 25, 2024.
The implementation of this change has now been deferred to January 1, 2026. For the 2024 tax year, the capital gains inclusion rate remains at 50%, with no tiered structure based on gain thresholds.
Canada Carbon Rebate (CCR)
Proposed legislation that is NOT YET being administered by the CRA
Effective April 2024, CCR, previously known as the Climate Action Incentive Payment, provides quarterly, non-taxable payments to offset pollution pricing. Payments for 2025, based on the 2024 tax return, will begin in April 2025.
Residents of Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador are eligible for this rebate if they meet the residency and filing criteria.
The rural and small community supplement has increased from 10% to 20% of the base rebate amount, effective June 22, 2024. This supplement applies to individuals residing in rural or small communities, with eligibility now determined using 2016 Census data. As a result of these changes, more individuals may qualify for the supplemental credit.
Employee Ownership Trusts (EOT)
Effective January 1, 2024, EOTs were introduced as part of Canada’s efforts to encourage business succession planning. An EOT is a special type of trust designed to enable employees to collectively purchase and own the business they work for. This structure supports long-term stability, continuity, and employee engagement within the business.
Key updates related to EOTs include:
- A temporary $10 million capital gains exemption is available for qualifying sales to an EOT, applicable from 2024 to 2026. This provides tax relief for business owners selling their shares to employees through the trust.
- The capital gains reserve period has been extended from 5 to 10 years for sales to EOTs, allowing sellers to spread the tax on their capital gains over a longer period.
Home Buyer’s Plan (HBP)
Effective April 16, 2024, updates to HBP provide greater flexibility for first-time homebuyers. This plan allows eligible individuals to withdraw funds from their Registered Retirement Savings Plan (RRSP) without immediate tax consequences to purchase or build a home. Key changes include:
- The maximum RRSP withdrawal limit has been increased to $60,000 per individual (up from $35,000). Couples may withdraw up to $120,000 combined.
- Temporary repayment relief permits a five-year deferral of repayments for withdrawals made between January 1, 2022, and December 31, 2025.
Canada Dental Care Plan (CDCP)
CDCP provides dental coverage to uninsured families with net incomes below $90,000. The plan is being implemented in phases:
- 2023 – 2024 Phase: Coverage is available to seniors (65+), individuals with disabilities, and children under 18.
- 2025 Phase: The plan is expected to expand coverage to all eligible individuals aged 18 to 64, pending approval.
Short-Term Rental Expense Changes
Effective January 1, 2024, property owners will no longer be able to deduct expenses related to short-term rental properties that do not meet compliance requirements. Non-compliant properties are those that fail to adhere to local regulations, such as licensing, zoning, or safety standards. Deductible expenses affected include mortgage interest, property taxes, and maintenance costs.
A transitional relief period was available until December 31, 2024, to allow property owners time to bring their rentals into compliance.
Disability Supports Deduction
Proposed legislation that is NOT YET being administered by the CRA
Effective January 1, 2024, eligible expenses related to disability supports are now deductible for individuals who incur these expenses to earn employment income, carry on a business, or pursue education. This deduction helps alleviate the financial burden of necessary supports for individuals with disabilities.
Eligible Expenses:
- Sign-language interpretation services.
- Note-taking services.
- Specialized equipment, such as alternative input devices (e.g., voice-controlled technology).
- Ergonomic work furniture, including chairs or desks designed for accessibility.
- Memory and organizational aids for individuals with cognitive disabilities.
- Navigation devices for individuals with vision impairments.
Farnham Expense Template
For our applicable clients, we have provided a template here, which will assist you with the summarization of your business expenses to be reported on your personal tax return. The new template will minimize possible errors and improve efficiency during the preparation of your tax returns. Please enter the expenses in the excel spreadsheet, which can be downloaded from our website, and submit to us along with your tax documents. If there are any questions regarding how to complete the template, please connect with your Farnham representative.
Reminders
Filing Deadlines
Personal tax returns and any balance owing is due Wednesday April 30th.
Self-employed individuals and their partners’ filing due date is Monday June 16th, however any balance owing is due April 30th.
Interest and Penalties on Unpaid Taxes
Unfiled taxes see penalties of 5% on the balance owing plus an additional 1% for each full month after the filing deadline up to a maximum of 12 months.
If, however, you were late in filing in any 3 past years and receive a demand to file request the penalty on the balance owing is now 10% plus 2% for each full month after the filing deadline to a maximum of 20 months.
In addition to the filing penalties, unpaid taxes will be charged interest at an annual rate of 10% compounded daily.
RRSP Contributions
March 3rd is the RRSP contribution deadline. Any contributions made between January 1st, 2025 to March 3rd, 2025, can be deducted in either 2024 or 2025 tax filings, subject to your RRSP room available. Review your 2023 Notice of Assessment for your available room, or check online with CRA “My Account”, if registered. An overcontribution above $2,000 will trigger a 1% monthly penalty.
TFSA Contributions
Canadian residents over 18 years of age can open a tax-free-savings account (TFSA). The annual limit is $7,000 for 2024 and $7,000 for 2025. At any time in the year, if you overcontribute to the TFSA you will be taxed at 1% of the highest excess in the month for each month you are in excess.
FHSA Contributions
Canadian residents aged 18 or older who are first-time homebuyers can open a First Home Savings Account (FHSA). The annual contribution limit is $8,000, with a lifetime cap of $40,000. Contributions are tax-deductible, and withdrawals for a qualifying home purchase, including investment growth, are tax-free. Unused contribution room carries forward up to $8,000 per year.
Late Slips
Typically, T3 (trust) and T5013 (partnership) slips are not issued until the end of March and foreign slips can be even later. If you receive a late or amended slip after filing, please notify us as soon as possible to amend your return. The CRA’s matching program will identify any missing slips and impose penalties.
Paying CRA
Three payment options:
- Pre-Authorized Debit (PAD): A one time draw directly from your bank account on a specified withdrawal date. The PAD form must be filed at least 5 days before the withdrawal date and therefore must be submitted by April 23rd to meet the April 30th deadline.
- Online: Sign-in through your financial institution and add CRA as a payee. Your account number would be your 9-digit SIN.
- Remittance Voucher: We can issue a voucher that you can mail with a cheque or take to your bank for a direct transfer.
Note: Payments made after 2023, section 160.5 of the income tax act, requires remittances over $10,000 to be paid electronically unless the remitter cannot reasonably pay in that manner. A penalty of $100 will apply for failure to remit electronically, however it is anticipated that there will be a grace period before the penalty is imposed.
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