2024 year-end tax planning checklist

Effective wealth planning takes place throughout the year. However, you can take some key steps before the end of the year and early in the new year from a tax-planning perspective that can make a positive impact on your overall finances.

While the following list is not exhaustive, here are some time-sensitive items to look at now for 2024 as well as items to consider for the new year.

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On or before December 15, 2024

Pay quarterly tax instalments for 2024, if required.

If your 2023 tax return showed net tax owing (total tax liability less tax withheld at source) of over $3,000 ($1,800 for Quebec residents), you may have received a notification from the Canada Revenue Agency (CRA) or Revenu Québec (RQ) for Quebec residents, requiring you to pay quarterly tax instalments for 2024.

If you have not paid these instalments and expect your net tax owing in 2024 to exceed $3,000 ($1,800 for Quebec residents), you should make a payment as soon as possible. This will reduce or avoid instalment interest and penalties being charged.

Note: Interest on instalments and amounts owing to the CRA compounds daily at the “prescribed rate” plus an additional 4%. Amounts owing to RQ are also subject to interest charges. Given the interest rate environment during 2024, be sure all outstanding instalments and taxes are paid.

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On or before December 30, 2024

The following strategies focus on capital gains planning. For investments, trades must be entered on or before December 30, 2024, in order to be settled by December 31, 2024 (under the new T+1 settlement cycle). Be aware of any other factors that may limit your ability to trade certain positions on short notice, such as liquidity constraints with alternative investments.

Optimize the taxation of your capital gains and losses.

2024 could be a “transition year” where two different capital gains inclusion rates apply to your capital gains and losses; consult with your tax and investment advisors to review your situation and consider planning to optimize taxation on these amounts.

Background: The federal government has proposed to increase the capital gains inclusion rate for capital gains and losses realized on or after June 25, 2024, from 50% to 66.67%.

For individuals, graduated rate estates, and qualified disability trusts, the 50% inclusion rate will continue to apply on the first $250,000 of net capital gains realized during the year. The 66.67% inclusion rate will only apply to net capital gains realized during the year in excess of $250,000. For the period between June 25 and December 31, 2024, the $250,000 threshold will be available and will not be prorated.

For corporations and all other trusts, the 66.67% inclusion rate will apply on every dollar of net capital gains realized starting June 25, 2024.

Consider the following strategies:

• Trigger additional capital gains before year-end. This could allow you to take advantage of the 50% inclusion rate available to individuals on the first $250,000 of net capital gains realized between June 25 and December 31, 2024. The annual threshold is a “use it or lose it” amount, meaning that any unused portion of the threshold from 2024 does not carry over to 2025.
  
  One downside of this strategy is the loss of tax deferral as a result of prepaying tax. Whether prepaying tax now to take advantage of the annual threshold will outweigh the loss of tax deferral depends on numerous factors, including the expected rate of growth on the assets sold and the intended investment horizon.
• Review whether claiming a capital gains reserve makes sense. If you sold an asset this year and will receive portions of the payment over a number of years, you may be able to claim a capital gains reserve to defer a portion of the total capital gain from being recognized as income this year. For individuals, claiming a reserve and spreading the recognition of the total capital gain out could help with using their $250,000 annual threshold for the 50% inclusion rate over multiple years.
• Put tax-loss strategies to work. It may make sense to create capital losses that can be used against capital gains you have already realized. For individuals, this could help with keeping net capital gains within the $250,000 annual threshold for the 50% inclusion rate.
  
  Be aware that any tax-loss selling strategies you use should account for the “superficial loss” rules, which will deny capital losses if identical investments are repurchased (or have been previously purchased) within a specified time period.

Note: Be sure to factor in the impact of foreign exchange if investments are not denominated in Canadian dollars.

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On or before December 31, 2024

Tax-Free Savings Account (TFSA):

• Consider making a contribution to your TFSA. The TFSA dollar limit for 2024 is $7,000. Keep in mind that TFSA contribution room accumulates if not used, so you may be able to top up your TFSA if prior contributions were missed. Check with the CRA to verify your unused contribution room.
• If you plan to withdraw from your TFSA soon, consider making the withdrawal by year-end rather than waiting until early next year. This is because a withdrawal this year will be added back to your TFSA contribution room at the beginning of next year.

Registered Retirement Savings Plan (RRSP) and Registered Retirement Income Fund (RRIF):

• Consider withdrawing funds from your RRSP or RRIF by year-end if you are in a lower tax bracket this year, or to take advantage of the $2,000 pension tax credit for RRIF income received by individuals that are at least age 65.

Note: If you are the owner of a spousal RRSP, you should be mindful of “income attribution” rules that may apply to withdrawals you make from the account, if your spouse had made contributions during the year or the two prior calendar years.

• If you plan to withdraw from your RRSP under the Home Buyers’ Plan (HBP) or Lifelong Learning Plan (LLP) soon, consider making the withdrawal early next year rather than by year-end to maximize the repayment period.

Note: The HBP withdrawal limit for withdrawals made after April 16, 2024 is now $60,000 (previously $35,000).

In addition, if you make a first withdrawal under the HBP between January 1, 2022 and December 31, 2025, temporary rules will allow you to defer the start of the 15-year repayment period to the fifth year following the year you make your first withdrawal (previously the second year).

• If you are age 71 this year, you must convert your RRSP to a RRIF by December 31 and begin taking minimum withdrawals next year. Consider the following:
  • Using your younger spouse’s age for minimum payment calculations.
  • Making a final RRSP contribution by year-end, if you have “earned income” in 2024 and do not have a younger spouse that you can make RRSP contributions for in the future. A final contribution can be made to account for new RRSP room that will accrue on January 1, 2025 but will not be available to you as you can no longer own RRSPs. However, be aware that if the final contribution exceeds your 2024 RRSP contribution limit, there will be a monthly 1% penalty tax payable on the overcontribution, before new room accrues on January 1, 2025.

Tax-Free First Home Savings Account (FHSA):

• If you have an FHSA open, consider making a contribution by year-end so that that you may claim it as a deduction on your 2024 tax return. The FHSA annual participation room is $8,000, with a lifetime limit of $40,000.
• If you are eligible to open an FHSA, consider opening an account by year-end. Even if you cannot make a full contribution by year-end, opening an account would allow you to carry forward up to $8,000 of unused FHSA participation room to next year. However, be aware that your maximum participation period for the FHSA is 15 years, so opening an account by year-end means that you would have to close it by December 31, 2039.

Example: Opening an FHSA by year-end would allow you to contribute up to $16,000 in 2025 (assuming no contributions are made this year), while opening an FHSA in 2025 would only allow you to contribute $8,000 in 2025.

• If you made a qualifying withdrawal from an FHSA during 2023 to purchase your first home, you must close all of your FHSAs on or before December 31, 2024. Any remaining balances in your FHSAs could be transferred to your RRSP or RRIF on a tax-deferred basis, provided the transfer is a direct transfer and the transfer is made before this date. This transfer would not require you to use your existing RRSP contribution room.

Registered Education Savings Plan (RESP) and Registered Disability Savings Plan (RDSP).

• Consider making contributions to an RESP and/or RDSP for the benefit of your family members. The federal government can provide grants and bonds to RESPs and RDSPs which are tied to contributions made.

Consider making charitable donations.

• Donating certain property directly to charities, such as publicly listed securities, can increase your tax savings.

Note: Some charities may require additional time to accept and process donations during this time. You should plan accordingly.

Changes to the federal “alternative minimum tax” (AMT) applicable as of 2024 could reduce the tax efficiency of making donations. In computing an individual’s minimum tax each year, the AMT limits the amount of donation tax credits that can be claimed to 80% of what can be claimed under regular income tax rules. It also requires 30% of capital gains from the donation of publicly listed securities to be included when calculating taxable income (compared to 0% under regular income tax rules). Consult with your tax advisors to assess whether any of your donations could result in AMT implications.

Pay expenses eligible for tax deductions or credits.

These include but are not limited to:

• Investment management fees
• Interest on third-party borrowings used for investing
• Child care expenses
• Medical expenses
• Home office expenses

Consider whether to intentionally recognize or delay taxable income this year.

If you anticipate your overall tax rate will be materially different between this year and next year, you may wish to intentionally recognize or delay items of income, deductions, and credits to take advantage of the anticipated tax rate differences. One example outlined earlier is the claiming of a capital gains reserve.

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On or before January 30, 2025

Pay the accrued interest on outstanding income-splitting loans.

Interest on such loans must be paid on or before this date to avoid the application of income attribution rules.

Note: If your income-splitting loan was entered into during 2024, accrued interest must be paid on or before this date, even if the loan has not been outstanding for a full 12 months.

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On or before March 3, 2025

Make RRSP and/or spousal RRSP contributions.

A RRSP or a spousal RRSP contribution made on or before this date will be deductible on your 2024 tax return, subject to your RRSP contribution limit. The RRSP dollar limit for 2024 is $31,560. Check with the CRA to verify your RRSP contribution limit.

Note: If you turned age 71 in 2024, you would only have until December 31, 2024 to make a final contribution to your RRSP.

Pay the minimum repayment amount on the outstanding balance of your HBP or LLP.

If the minimum repayment amount is not made on or before this date, it will be taxable on your 2024 tax return.

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Additional considerations for incorporated business owners

Items to consider include but are not limited to:

• Salary and dividend mix for the year to yourself and family members. Salaries paid must be reasonable in the circumstances. Be aware that dividends paid to related persons from a private corporation may be caught under the “tax on split income” rules.
• Planning for investments held within your corporation, particularly if it or any associated corporations benefit from the “small business deduction” on active business income. Tax rules phase out the small business deduction limit of an associated corporate group once its passive investment income from the prior year exceeds $50,000.
• Repaying shareholder loans owed to your corporation to avoid potential inclusion of a taxable benefit.

Note: A taxable imputed interest benefit may be applicable when you repay all or a portion of an outstanding shareholder loan. Consult with your tax advisors for more detail.

• Declaring capital dividends from your corporation’s “capital dividend account” (CDA). Capital dividends are favourable because they are tax-free distributions to Canadian-resident shareholders.

Note: Since 2024 may be a transitional year where two different capital gains inclusion rates apply, take special caution when computing the balance of your corporation’s CDA so that you avoid excess capital dividends being declared during the year. Capital dividends declared in excess of the CDA are subject to a penalty equal to 60% of the excess amount.

If it makes sense to implement tax-loss selling in your corporate investment portfolio, you may want to review whether there is a positive balance in the CDA and whether to declare a capital dividend prior to selling investments. This is because the non-deductible portion of capital losses realized will immediately decrease the balance in the CDA.

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Additional considerations for trustees of trusts

• If you are a trustee of a trust that has taxable income during the year, we recommend that you work with your tax and legal advisors to determine whether this income will be retained in the trust or will be distributed to beneficiaries and the associated tax implications. Trustee decisions to distribute income to beneficiaries generally have to be made by year-end for this income to be taxed in the beneficiaries’ 2024 tax returns.
• Consult your tax advisors on whether “enhanced trust reporting rules” are applicable to the trust you manage. These rules may require you to file a trust income tax and information return for the year with an additional schedule disclosing information on the various parties to the trust. These rules apply not only to traditional trusts but also to “bare trust arrangements,” where the trustee only has legal ownership of the trust’s property and has no significant powers or responsibilities other than to deal with the property under the instruction of the beneficiaries, who retain beneficial ownership over the trust’s property.

Note: There was significant scrutiny on the application of the enhanced trust reporting rules, particularly to bare trust arrangements. In response, the government recently released draft legislation that may exempt certain bare trust arrangements from the reporting rules until 2025. Therefore, if you are part of a bare trust arrangement, you should consult your tax advisors to keep abreast of relevant updates. Should a trust be subject to the enhanced trust reporting rules for 2024, the filing due date of the tax return is March 31, 2025.

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Additional considerations for certain owners of Canadian residential property

If you are not a Canadian citizen or permanent resident (under immigration laws), or are not the direct legal owner of residential property in Canada, you may have obligations under the federal “Underused Housing Tax” (UHT). The UHT includes an annual declaration requirement to the CRA. Consult your tax advisors on this matter.

The filing due date of the 2024 UHT return is April 30, 2025.

Note: The UHT is separate from any provincial and municipal vacancy taxes and associated filings that may also be applicable, depending on the location of your residential property. Consult your tax advisors on this matter.

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Conclusion

Talk to your professional investment, tax, and legal advisors before implementing any of these strategies to make sure they fit within your overall wealth plan.

Contact your Richardson Wealth Advisor for more information on these topics, including:

• Proposed changes to the capital gains inclusion rate
• Tax-loss selling and advanced tax loss selling
• TFSA
• RRSP
• HBP and LLP
• FHSA
• RESP
• Shareholder remuneration
• Tax on split income
• Shareholder loans
• Enhanced trust reporting rules
• UHT
• 2024 federal budget