2024 Tax Planning Tips

By McGovern Hurley

As we start the year 2024, it is crucial to evaluate your financial situation and explore opportunities for tax optimization. Consider the following deadlines and planning tips to make the most of potential tax savings opportunities:

Your Upcoming Tax Deadlines

Your Payment Due Dates

Planning for Homeowners and Buyers

    • Residential Property Sale: If you have sold a residential property in the 2023 year, it is crucial to disclose specific details about the sale in your 2023 personal income tax return. Make sure to keep all relevant documents accessible for the tax return preparation process. In cases where the property ownership was less than 12 months before the sale, special rules related to “residential property flipping” might be applicable, treating the gain as business income, subject to certain exceptions. It is important to note that if this rule is triggered, the profit from the sale is taxed at standard income rates, and the “principal residence exemption” does not apply.
    • First Home Savings Account (FHSA): FHSA is designed for first-time homebuyers in Canada who are at least 18 years old. Introduced this year, the FHSA allows residents to contribute up to $8,000 annually and $40,000 over a lifetime.Contributions made to the FHSA are eligible for a tax deduction, providing a unique tax-free savings avenue for prospective homebuyers. Withdrawals from the FHSA, including any accrued investment income or growth, are tax-free when used to purchase a qualifying home, similar to the tax treatment of withdrawals from a Tax-Free Savings Account (TFSA). Additionally, the Home Buyers’ Plan allows for a non-taxable withdrawal of up to $35,000 from an RRSP for the same home purchase.
    • Underused Housing Tax (UHT): If you own residential property in Canada, you should ensure that you meet the reporting requirements under the new UHT rules. Currently, every person that, as of December 31 of a calendar year, is an “owner” of residential property in Canada, other than an “excluded owner”, is required to file a UHT return for the calendar year in respect of the property. With limited exceptions, if an owner of a residential property is a corporation or is the owner of the residential property on behalf of a partnership or as a trustee of a trust, the owner must file an annual UHT return in respect of each reportable property they own as of December 31, and may also have to pay the 1% UHT unless they qualify for certain ownership exemptions, by April 30 of the following year.Although the first UHT returns and related payments (if applicable) for the 2022 calendar year were due April 30, 2023, the CRA announced that it will waive penalties and interest for any late-filed 2022 UHT returns and related late-paid UHT, provided the affected owner files any required returns and pays any related UHT by April 30, 2024. As a result, if you have not already, you should act quickly to determine whether you have UHT filing requirements and/or payment obligations, especially for the 2022 calendar year.

      Under the current rules, late-filing penalties are generally the greater of:

      • $10,000 for non-individuals and ($5,000 for individuals)
      • the sum of:
        • 5% of the UHT for the year
        • 3% of the UHT for the year multiplied by the number of months the return is late

Federal Economic Statement of fall 2023 proposed to reduce the minimum late-filing penalty to $1,000 (from $5,000) for individuals and $2,000 (from $10,000) for non-individuals. This amendment would apply retroactively to 2022 UHT returns, if enacted.

Property owners that are generally excluded from any UHT filing obligations or liabilities include:

      • most Canadian citizens and permanent residents of Canada (who may still have obligations if they’re a trustee or a partner of a partnership)
      • publicly-listed Canadian corporations if their shares are listed on a Canadian stock exchange on December 31
      • registered charities and Indigenous governing bodies or their wholly-owned corporations
      • cooperative housing corporations, hospital authorities, municipalities, public colleges, a school authorities and universities (as defined in the Excise Tax Act)
      • a trustee of a mutual fund trust, real estate investment fund trust or specified investment flow-through trust

In addition, Federal Economic Statement of fall 2023 proposed that specified Canadian corporations, trustees of a specified Canadian trust and partners of a specified Canadian partnership become “excluded owners” instead of “affected owners”, effective January 1, 2023. As a result, these types of owners would be exempt from the UHT fling obligations starting with 2023 UHT returns, if the changes are enacted. Accordingly, such owners must still file their 2022 UHT returns by the April 30, 2024 administrative deadline, or penalties will apply.


Planning for Owner-Managers

    • Compensation Options (Salary vs. Dividends): Determining the optimal method of compensating an owner-manager of a closely held corporation involves various considerations, and there is no universal rule that applies to all scenarios. Factors to examine include the corporation’s tax rate, the individual’s marginal tax rate, exposure to Alternative Minimum Tax, and contributions to RRSP & CPP. Additionally, one should assess wage levies applicable to salaries, like the Ontario Employer Health Tax.
      It is crucial to recognize that receiving dividend income results in a higher net income compared to an equivalent salary due to the grossing up of dividend income by 38% for eligible dividends or 15% for non-eligible dividends. This can impact an individual’s credits and benefits, such as old age security benefits. On the other hand, receiving a salary of up to $180,500 in 2024 would create RRSP contribution room for next year of up to $32,490 (the 2025 maximum). Additionally, remuneration, like accrued and expensed bonuses, must be paid to the employee within 180 days of the corporation’s year-end.
    • Business Transition Planning: Bill C-208 amended the Income Tax Act to provide tax relief to those who wish to transfer (sell) shares of their farm, fishing or small business to their adult children or grandchildren. It allows for the intergenerational transfer of shares to be treated the same as the sale of those shares to an arm’s length (unrelated) corporation.Prior to the amendments, when a business owner sold shares of their incorporated business to their adult child or grandchild, they would be taxed at the dividend rate (48% at the top marginal rate). However, if the business was sold to a non-family member, the seller would be taxed at the lower capital gains rate (27% at the top marginal rate) and would be able to use the capital gains exemption to reduce or fully eliminate their total income tax payable.

      Starting January 1, 2024, a set of more complex and stringent rules will be applicable, which will limit this type of planning to genuine business transfers where certain conditions, such as transfer of control and operations of the business to an adult child, are met.

Planning for Investors

    • Registered Retirement Savings Plan (RRSP): Making contributions to your RRSP for the 2023 tax year is important for maximizing tax-deferred growth, and the deadline to contribute for the 2023 tax year is quickly approaching on February 29, 2024. The deduction for your 2023 RRSP is limited to 18% of the income earned in 2022, capped at $30,780.When considering RRSP withdrawals under the Home Buyer’s Plan (HBP) or Lifelong Learning Plan (LLP), you can withdraw funds without immediate tax implications. For HBP, the limit is $35,000 for first-time homebuyers, and for LLP, it is up to $20,000 for post-secondary education. Repayment of these funds is required in future annual installments, based on the year of withdrawal. If contemplating withdrawals, delaying repayment by one year is an option if funds are withdrawn early in 2024 rather than late in 2023.
    • Tax-Free Savings Account (TFSA): Contributing to your TFSA is another valuable year-end consideration, with the 2024 dollar-limit set at $7,000. There is no specific deadline for TFSA contributions, allowing flexibility. However, caution should be exercised when withdrawing funds from a TFSA, as re-contributing in the same year without sufficient room can incur overcontribution penalties. Direct transfers between TFSAs are advisable to avoid such penalties.

Estate Planning & New Trust Reporting

Be aware of new trust reporting requirements for taxation years ending after December 30, 2023. Effective for tax years ending December 31, 2023, or later, most trusts that previously did not have to file an annual T3 income tax return will no longer be exempt. This change is significant, as many trusts and trust arrangements (including bare trust arrangements) that did not previously have a requirement to file, will now be required to file annual T3 returns going forward. Further, trusts that meet the requirement to file must disclose much more extensive information relating to trustees, beneficiaries, settlors, and controlling persons for tax years ending December 31 and later, which may create a significant burden for trustees. We strongly recommend reviewing the filing requirements and obtaining any outstanding information as soon as possible and prior to the filing deadline on April 1, 2024.


Planning for Education

Contribute to a Registered Education Savings Plan (RESP) for tax-efficient child education savings. RESP contributions are a great way to save for a child’s future education costs, like tuition and textbooks, and can be used for other post-secondary education expenses such as transportation or rent. There is no annual limit to how much you can contribute to the RESP. Over the lifetime of the RESP, the maximum that can be contributed is $50,000 per beneficiary. The Basic Canada Education Savings Grant (CESG) provides a 20% match on the first $2,500 in annual contributions per beneficiary, up to a maximum of $500 per year, to a lifetime maximum of $7,200. Families with adjusted family net income below $106,717 can receive an additional 10% – 20% of the first $500 contributed to the RESP, which can further enhance the grant. By contributing annually, you can maximize the government grants available, effectively boosting your savings for a child’s education.

RESP contributions grow tax-deferred until the funds are withdrawn for educational purposes. This means that any interest, dividends, or capital gains earned within the RESP are not taxed until the beneficiary starts using the funds for qualified education expenses. By making regular contributions each year, you allow more time for your investments to grow and significantly enhance the overall value of the RESP over time, providing a larger pool of funds for educational expenses when needed.


Charitable Giving

Consider making charitable donations to benefit from tax credits offered by both federal and provincial governments. The combined credits can yield tax savings of up to 55% of your gift’s value in 2024, depending on your place of residence. For cash donations up to $200 in a year, the federal donation credit is 15%, and for amounts exceeding $200, it increases to 29% (33% if taxable income exceeds $246,752 for 2024). Provincial credits further contribute to the total, reaching a potential 55% once annual donations surpass $200.

Explore the option of “gifts in-kind” by donating publicly traded securities, such as mutual funds, to a registered charity or foundation. This approach not only provides a tax receipt for the fair market value of the donated security but also eliminates capital gains tax. Plan these in-kind gifts ahead of year-end to ensure ample time for arrangements.

Be mindful of the proposed 2024 changes in Alternative Minimum Tax (AMT) calculations, particularly if you anticipate substantial charitable contributions. These changes may limit the donation tax credit to 50% and include 30% of capital gains on publicly listed securities in AMT calculations.

For more information on any of the above planning opportunities, please feel free to reach out to the team here at McGovern Hurley LLP.

John Mendis, Tax Advisory and Compliance Partner, jmendis@mcgovernhurley.com

Greg Furyk, Business Advisory and Compliance Partner, gfuryk@mcgovernhurley.com