2024 year-end tax considerations

Businesses looking to utilize any of these incentives must be fully aware of any pre-approvals, the ongoing compliance requirements, and the specified timelines related to the respective ITC.

Each ITC has a unique set of detailed requirements, and the rules can be complex. Contact an MNP advisor to help you determine if you qualify for any of the clean energy ITCs.

Salaries or dividends?

Speak with an advisor to determine the ideal balance of salary or dividend remuneration for you and your family members in 2024.

They will consider several factors, including current and future cash needs, federal and provincial tax rates, and corporate attributes. They will also consider which type of remuneration can be paid while managing the Tax on Split Income (TOSI) rules.

Under TOSI rules, dividends paid to family members can be subject to the top marginal personal income tax rates. Salaries are not subject to TOSI rules, but general limitations apply (e.g. the amount paid to family members must be reasonable). If opting for salaries, be aware that any accrued amounts — including bonuses — are paid within 179 days of year-end.

Tax payments

Avoid interest charges by remitting final corporate income tax balances to the Canada Revenue Agency (CRA) and applicable provincial tax authorities within two months following year-end (three months for certain Canadian-controlled private corporations (CCPCs)).

CRA interest rates on overdue taxes remain high (nine percent at the time of writing). Making tax payments on time can help prevent costly non-tax-deductible interest charges.

Succession planning

Intergenerational business transfers

If you plan to transition your business to the next generation, consider the updated intergenerational business transfer rules that apply to transactions as of January 1, 2024. These new rules are more restrictive and can impact your ability to access the lifetime capital gains exemption (LCGE) when selling the business to the next generation.

Under the new rules, two approaches can be taken to achieve a tax-effective intergenerational business transfer:

• Option 1: An immediate transfer that takes place over three years
• Option 2: A gradual transfer that takes place over five to 10 years

The new rules also expand the definition of child for intergenerational business transfers to include nieces, nephews, grandnephews, and grandnieces — in addition to children, stepchildren, and children-in-law.

These new rules add complexity when navigating the transfer of a business to the next generation while claiming the LCGE. Connect with an advisor if you are considering an intergenerational business transfer.

Employee ownership trusts

When transferring the business to the next generation is not possible, you might consider the opportunity to transition to employees through an employee ownership trust (EOT). An EOT is a trust that will acquire and hold shares of a qualifying business exclusively for the benefit of the employees. 

Under these new rules, the normal five-year capital gain reserve is increased to 10 years. Additionally, a temporary exemption of $10 million in capital gains realized on a qualifying business transfer to an EOT between January 1, 2024, and December 31, 2026, may be available (subject to certain conditions).

The $10 million capital gains exemption may make the EOT an attractive succession alternative. However, access to this exemption is temporary and only available on qualifying transfers between 2024 and 2026 (inclusively). Contact an advisor to review your succession plan and consider whether your business sale to an EOT would be beneficial.

Will and estate planning

It is important to keep your will current. Your will and estate planning documents are vital to ensuring they reflect your current circumstances and that your wishes are carried out.

You should review your will any time you experience a significant life change (e.g. marriage, birth, divorce, or death) — especially if your estate plan includes transferring your business to family members or others. Even without material life changes, your estate plan should be reviewed regularly to help ensure it remains tax-effective and achieves your intended objectives.

Contact an advisor to learn more about wills and estate planning.

Personal

Important payments dates

You may be aware of the payments that must be made by December 31 to qualify for 2024 tax deductions or credits (e.g., charitable donations, federal or provincial political contributions).

Also, consider the following deadlines which can impact your 2024 tax year:

• December 15, 2024 — Final 2024 instalment due date. As this date falls on a Sunday this year, the CRA will generally consider your payment to be made on time if received by December 16, 2024.
• January 30, 2025 — Payment of any interest on loans from your employer (to reduce your taxable benefit) and interest owed on loans from family members.
• February 14, 2025 — Reimbursement of any personal motor vehicle expenses to your employer to reduce your taxable benefit from an employer-provided vehicle.
• March 3, 2025 — Repay RRSPs withdrawn under a Home Buyers’ Plan or Lifelong Learning Plan; make RRSP contributions for yourself or a spouse / common-law partner.
• April 30, 2025 — Final personal tax payments for 2024 are due.

Make all instalment and final tax payments by the deadlines above to prevent incurring interest charges.

Self-employment expenses

Ensure you document all self-employment expenses with receipts and maintain a logbook to support all motor vehicle expenses.

Employment expenses

You may be able to deduct any expenses you incurred to earn employment income that your employer required you to pay for on your personal tax return. Track and retain receipts for expenses such as annual union, professional, or other dues not paid/reimbursed by your employer.

Shareholder loans

Do you have an outstanding loan from your corporation? Consider repaying it within 12 months from the end of the corporation’s tax year in which the loan was made. Otherwise, the loan may become income to you personally.

For example, if your corporation with a December 31 year-end loaned you money on April 15, 2023, you must repay the loan by December 31, 2024. Otherwise, the loan will be included in your 2023 personal income tax return.

RRSPs

Make contributions to your Registered Retirement Savings Plan (RRSP) to reduce taxable income for the year. Contributions made to a spouse or common-law partner’s RRSP are also deductible. The 2024 contribution limit is 18 percent of your 2023 earned income to a maximum of $31,560.

Check your 2023 Notice of Assessment for your available contribution room for 2024. Contributions must be made on or before March 3, 2025, to be deductible for 2024.

RESPs

Contributions to a Registered Education Savings Plan (RESP) will not impact your 2024 income tax liability. However, these will allow you to save for your child’s future education and utilize the Canada Education Savings Grant (CESG).

You can contribute any amount to a RESP, subject to a lifetime limit of $50,000 for each child. Under the CESG, the government matches 20 percent on the first $2,500 contributed annually to a RESP (i.e. up to $500 annually and a lifetime maximum of $7,200 per child).

TFSAs

Contributions to a Tax-Free Savings Account (TFSA) are not tax-deductible. Still, income earned in the account throughout its lifetime and amounts withdrawn are not subject to income tax. The 2024 limit is $7,000.

Keep track of your TFSA contributions to ensure you maximize the tax-sheltered growth of your investments and avoid over-contribution penalties. Check with CRA and your financial institutions to confirm you have contribution room before contributing.

FHSAs

A First Home Saving Account (FHSA) allows you to save for a first home purchase while reducing taxable income for the year through tax-deductible contributions. Additionally, qualifying withdrawals (including investment income earned) to purchase a first home are non-taxable.

The 2024 limit is $8,000. Unlike the TFSA, the FHSA contribution room does not automatically accrue. This means you should open an FHSA account now to start accruing contribution room, even if you are not quite ready to make the contributions this year.

Charitable donations

The federal and provincial governments offer donation tax credits, resulting in tax savings of up to 55 percent of the value of the gift. The right donation strategy can help minimize income taxes while meeting your philanthropic goals.

The impact of the new Alternative Minimum Tax (AMT) rules effective 2024 (discussed below) should be considered when planning for the amount and timing of your donations.

Recent and upcoming changes to consider

Increased capital gains inclusion rate

The capital gains inclusion rate was announced to increase from 50 percent to 66.67 percent for corporations and most categories of trusts for capital gains realized on or after June 25, 2024.

The inclusion rate was also announced to increase from 50 percent to 66.67 percent on the portion of capital gains realized in the year that exceeds $250,000 for individuals and select types of trusts. The first $250,000 of capital gains an individual realizes in a particular year will remain taxable at a 50 percent inclusion rate. This change is also effective on capital gains realized on or after June 25, 2024.

For tax years that include June 25, 2024, all taxpayers must carefully track capital gains and losses, as special transitional rules apply depending on when capital gains or losses are realized in the year.

This measure has not been enacted at the time of writing. As such, some uncertainty remains on the full impact of capital gains realized in 2024.

Contact an advisor to discuss how these proposed changes and complex 2024 transitional rules will impact you.

Canadian entrepreneurs’ incentive

The Canadian Entrepreneur’s Incentive (CEI) is framed as an add-on to the LCGE on the disposition of certain qualifying corporation shares, intended to support and encourage Canadian entrepreneurs.

Essentially, the incentive reduces the enacted capital gains inclusion rate by one-half, with a lifetime maximum of $2 million. If the capital gains inclusion rate increases to 66.67% as proposed, this would mean an inclusion rate of 33.33% on qualifying gains.

The $2 million lifetime maximum is proposed to be phased in starting in 2025 at $400,000 per year and maxing out at $2 million in 2029. Eligibility to the CEI has been extended to include a qualified small business corporation share or all qualified farm or fishing property. However, this does not apply to excluded businesses, including:

• most incorporated professionals
• consultants
• financial services
• insurance companies
• real estate companies
• businesses that derive most of their value from goodwill, and
• many other service-related businesses

This new incentive would apply to dispositions on or after January 1, 2025. However, this measure is not yet enacted at the time of writing.

Connect with an advisor to discuss whether your business could qualify for the CEI and if it could be beneficial to delay selling your business once the measures are enacted.

Residential property flipping rule

Profits arising from the sale of residential property (including rental property) owned for less than 12 months or from an assignment sale may be fully taxed as business income and will not qualify for the capital gain inclusion rate or the principal residence exemption. Certain exceptions to the anti-flipping rule for extenuating circumstances are available to taxpayers who sell their property within 12 months (e.g. homeowner’s death or divorce).

Where a residential property is considered a flipped property and it sells at a loss, the loss is deemed to be nil under the anti-flipping rules.

Contact an advisor before you put your property on the market and determine whether these anti-flipping rules will apply.

Alternative minimum tax

The alternative minimum tax (AMT) is an alternative method to calculate the income tax you owe in Canada. These rules were significantly changed effective January 1, 2024.

The changes have broadened the AMT impact on high-income individuals and involve a complex calculation that adjusts an individual’s regular taxable income. The AMT is often applicable when a taxpayer has claimed a preferential tax deduction like a capital gains deduction or has preferential rates due to credits, such as donations or dividend tax credits.

Among other changes, the federal AMT rate is increased to 20.5 percent (from 15 percent) and the AMT exemption for individuals is indexed to the fourth tax bracket, which is $173,205 for 2024. In addition, the AMT base is broadened by including more income and limiting certain deductions, exemptions, and credits when calculating the AMT.

These changes have resulted in more taxpayers being subject to AMT and therefore may now need to consider AMT implications when undertaking certain transactions. Speak to a tax advisor to discuss alternatives to help minimize the impact of the new AMT rules. 

Trust reporting rules

Effective for tax years ending December 31, 2023, most personal trusts resident in Canada that previously did not have to file an annual T3 income tax return are no longer exempt. This change was significant, as many more trusts are now required to file a T3 annually and report their beneficial ownership on the T3 Schedule 15 (Beneficial ownership information of a trust).

Most significantly, these new rules extended to arrangements generally known as “bare trusts”.

Several changes to these enhanced trust reporting rules were included in proposals released in August 2024. The draft legislation narrows the trust filing requirements for taxation years ending after December 30, 2024. The proposed amendments remove the enhanced filing obligation for bare trusts for the 2024 taxation year. A new narrower definition for bare trust will also replace the existing definition for taxation years ending after December 30, 2025.

For 2024, the CRA announced it will not require bare trusts to file the annual T3 return, including T3 Schedule 15. This exemption is expected to apply regardless of the status of the August 2024 proposals.

Contact an advisor to discuss whether these latest changes impact you and your potential T3 filing obligations.

Underused housing tax

The underused housing tax (UHT) is a one percent annual tax that generally applies to certain underused or vacant residential properties owned by non-Canadian citizens or non-Canadian permanent residents. The tax will continue to impact such property owners on record on December 31, 2024.

Any person who does not meet the definition of an “excluded owner” is considered an affected owner. This can include many corporations, and non-resident individuals on title to residential property. Affected owners are subject to an annual UHT reporting requirement. They will be subject to the one percent tax unless they qualify for one of the available exemptions.

In 2024, the federal government enacted changes to these rules and the definition of excluded owner. Notably, an excluded owner now includes specified Canadian corporations, partners of specified Canadian partnerships, and trustees of specified Canadian trusts. These owners are no longer obliged to file a UHT return. However, the ownership and beneficiary details should be carefully reviewed to confirm whether the required conditions are met.

It’s also important to note that even where an affected owner is exempt from the tax, a UHT return must be filed annually to claim the exemption. Significant penalties apply if the UHT return is not filed on time. The due date for 2024 UHT returns will be April 30, 2025.

Speak to an advisor to clarify your 2024 UHT filing obligations.

Excessive interest and financing expenses limitation

The excessive interest and financing expenses limitation (EIFEL) rules aim to restrict deductions of interest and financing expenses by certain taxpayers for tax years beginning on or after October 1, 2023.

Excluded entities will not be subject to the limitation and generally include any of the following:

• CCPCs that, along with any associated corporations, have taxable capital employed in Canada of less than $50 million
• Groups of corporations and trusts whose aggregate net interest and financing expense among their Canadian members is $1 million or less
• Certain standalone Canadian-resident corporations and trusts and groups that consist exclusively of Canadian-resident corporations and trusts that carry on substantially all of their business in Canada.

If the EIFEL rules apply, interest and financing expense deductions may be restricted, and additional compliance requirements must be met to prepare the necessary calculations, complete prescribed forms and possibly file elections.

These rules are complex. Contact an advisor to determine whether the EIFEL rules apply to you.