Financial Advice: Changes to the 2024 CRA Budget That You Should Know
You should be aware of a few changes to the CRA Budget going into 2024.
You should be aware of a few changes to the CRA Budget going into 2024. Everyone will be affected by these changes, and while most are minor, you may find yourself in a difficult situation. One small but major change is in the reporting rules of being up on a property. This could be a parent co-signing or adding your child onto your property, which could result in a fine of 5% of the value!
Highlighted Changes
Eliminating Short-Term Rental Deductions
GST Exemptions (Counseling Services)
The CPP Pension Enhancement
The Alternative Minimum Tax
Carbon Tax Increase
Income Taxes
TFSA Limits
Change to Bare Trusts (Cosigning)
Eliminating Short-Term Rental Deductions
Not everyone will be directly affected by this, most will be indirectly affected by this. While many cities are cracking down on short-term rentals (less than 90 days, Airbnb, VRBO, etc.), the Federal Government has now entered the chat. The government is going to deny deductions on short-term rentals if they are not compliant with provincial or municipal regulations. This could make owning a short-term rental far less profitable if you cannot deduct the high-interest cost from the mortgage and will force operators to be compliant with the short-term renting compliance in their area. Being compliant may come with additional fees or taxes.
This may make this practice less desirable going forward and force more investors to focus on long-term rentals. This could affect property prices if investors want out, or rental rates if a lot of rentals hit the market.
GST Exemptions (Counseling Services)
New in 2024, professional services for psychotherapists and counseling therapists will no longer have to charge GST. With mental health being such an issue today, this is a welcomed change to the tax system for everyone.
The CPP Pension Enhancement
This is a continued program that began in 2019. CPP contributions for working individuals will go up again as they did in 2023 to help fund the growing CPP distributions to retirees.
Many may not know how this works but every year you contribute a percentage of your pay up to $68,000 to the CPP program (0% on money earned after that). This year that percentage jumps to 5.95%. Your employer also contributes the same amount for the same amount of pay. For self-employed people, you will contribute on behalf of yourself and your employer (same as before).
This means if you make over $68,000 you will contribute $4,045.50 in 2024 and your employer will match that. If you are self-employed that total number is $8,051. This has been increasing over the years due to the CPP Pensions Enhancement. For reference, in 2018 these amounts were $2,594 (employee) and $5,148 (total).
The Alternative Income Tax (High-Value Investment Sales)
This has not passed yet, but the government is trying to put this change through. This is a new tax for asset sales outside of regular job sources (i.e. an income). This would be a flat rate tax for rental or investment assets sold with a gain creating an income higher than $173,000 in a year to be charged a flat 20.5% on that sale. This will stop individuals from deducting expenses on those sales to reduce their taxes, they would now pay a minimum of 20.5%, which is up from the previous 15%.
This is dependent on each situation and may affect some people more than others. The area where individuals may fall through the cracks would be working individuals who have an income and sell an investment property and their combined income rises above $173,000 because of the sale may be paying more taxes than they would normally.
Carbon Tax Increase
The Carbon Tax is jumping significantly from $65 a tonne to $80 a tonne. On April 1st, 2024, if you want to know what this means for you in a nutshell. The Carbon Tax on a liter of gas will now be 17 cents vs. 14 cents and on propane fuel this will increase 12 cents to 10 cents. While there is a rebate program for households to return about 90% of the tax, we will all be affected because this is an increased cost for delivery on everything in Canada. This take will increase the cost of goods.
Income Tax Brackets are Increasing
Every year income tax brackets increase due to inflation and in 2024 they will be increasing by 4.7%, which is good news. This means you will be paying slightly less in taxes if you earn the same amount as last year. This will save people about 0.40% in taxes (depending on your income level). An example would be if you earn $100,000 you will be taxed about $400 less than in 2023.
TFSA Limits
The TFSA limit is increasing to $7,000 for 2024! Great news.
Change to Bare Trusts (Cosigning and Partial Property Ownership)
This is not known by many people but when you cosign on a mortgage and become a partial owner of the property OR parents put their child on a property in case they are to pass away (i.e. Parents cosigning for their child) they create a “bare trust”. This MUST be reported going forward. Normally this would only be required if there is an income on the property but going forward this will be required in all scenarios. Failing to report this may result in a fine of $2,500 or 5% of all the property in the bare trust, whichever is higher. This is new in 2024 and if you find yourself in this situation be sure to declare this on your income tax filing.
Please let us know if you have any questions regarding any of these!
Sincerely,
Justin, Konrad, and Merriel
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Content Sources: Bloomberg, Trading Economics, Yahoo Finance, BCA Research
Disclaimer: This newsletter is solely the work of Konrad Kopacz and Justin Lim for the private information of their clients. Although the author is a registered Investment Advisor with Echelon Wealth Partners Inc. (“Echelon”) this is not an official publication of Echelon, and the author is not an Echelon research analyst. The views (including any recommendations) expressed in this newsletter are those of the author alone, and they have not been approved by, and are not necessarily those of, Echelon.
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