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With simply six weeks to go earlier than Dec. 31, now could be the right time to start your year-end tax planning. Right here’s a couple of issues to think about, that are distinctive to 2024.

Tax-gain promoting

The 2024 federal funds proposed a rise to the capital positive factors inclusion price for positive factors realized on or after June 25, 2024, whereby the inclusion price was elevated to 66.67 per cent, up from 50 per cent. People and sure trusts (particularly, graduated price estates and certified incapacity trusts) are nonetheless entitled to the previous 50 per cent inclusion price on the primary $250,000 of capital positive factors yearly. The rise within the tax price on capital positive factors over $250,000 is about 9 share factors, relying in your province or territory of residence.

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Whereas the laws hasn’t but been handed, it’s extensively anticipated to finally obtain royal assent, and be efficient as of this June 25. For traders with vital accrued capital positive factors of their portfolios, a brand new tax planning choice exists for 2024.

Think about whether or not it’s value crystalizing as much as $250,000 of capital positive factors earlier than yr finish to make the most of the decrease 50 per cent inclusion price. Crystallization for publicly traded shares is as simple as promoting the place on the open market and instantly shopping for it again. Word that, in contrast to for loss crystallization, there’s no equal superficial acquire rule, that means you don’t want to attend 30 days to purchase again the inventory on which you crystalized a capital acquire.

For 2024, the final commerce date is Dec. 30 for the commerce to settle by Dec. 31.

When deciding whether or not to make this transfer, think about your anticipated price of return and time horizon. For instance, if the tax that you simply don’t pay for 2024 was invested to earn six per cent capital positive factors, compounded yearly, it could take about eight years of tax-deferred progress, after-tax, to beat the tax financial savings attributable to the decrease inclusion price.

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First dwelling financial savings accounts

In case you’re a first-time homebuyer who’s a resident of Canada and a minimum of 18, the first dwelling financial savings account (FHSA) means that you can save on a tax-free foundation towards the acquisition of a house in Canada.

A primary-time homebuyer means you didn’t stay in a house that you simply or your partner or accomplice owned as your principal place of residence in 2024, or within the earlier 4 calendar years.

Beginning within the yr that you simply open an FHSA, you’ll be able to contribute (or switch from a registered retirement financial savings plan, or RRSP) a complete of $8,000 plus any carryforward (as much as one other $8,000) out there from the earlier yr, and as much as $40,000 throughout your lifetime.

In case you opened an FHSA in 2023 however didn’t but make any contributions to the FHSA, you’ll be able to contribute as much as a complete of $16,000 in 2024. You possibly can declare a tax deduction for contributions inside this restrict within the yr the contribution was made and any unused contributions may be deducted in any future yr. Not like RRSPs, contributions you make inside the first 60 days of 2025 can’t be deducted in 2024, that means that there’s a onerous contribution deadline of Dec. 31, 2024, for the 2024 contribution.

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It’s necessary to take into account that as a result of FHSA room solely begins accumulating when you open up your first FHSA, it could be worthwhile opening up your first FHSA by Dec. 31, 2024, even when you don’t have the funds to contribute the total $8,000 this yr. That’s as a result of by merely opening up the account in 2024, you’ll generate $8,000 of FHSA contribution room for 2024, and on Jan. 1, 2025, generate an extra $8,000 of room, that means that you could possibly contribute as much as $16,000 subsequent yr.

The most effective a part of the FHSA is that the contributions can develop tax-free for as much as 15 years, and withdrawals to buy a qualifying dwelling, together with withdrawals of any funding revenue or progress earned within the account, are non-taxable, similar to tax-free financial savings account withdrawals.

And, when you select to not use the FHSA to purchase a primary dwelling, you at all times have the choice (till the top of the yr you flip 71 or 15 years after opening an FHSA, whichever comes first) of transferring your complete truthful market worth of the FHSA to your RRSP or registered retirement revenue fund (RRIF) on a tax-free foundation. These transfers don’t use RRSP contribution room, and the funds now in your RRSP or RRIF will solely be taxed upon final withdrawal (or upon dying).

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Mother and father or grandparents of youngsters or grandchildren over the age of majority (18 or 19, relying in your province or territory of residence) could want to think about gifting as much as $8,000 to every youngster or grandchild in order that they will open up their very own FHSA to save lots of for his or her first dwelling. Whereas an 18-year-old in Grade 12 could not want a tax deduction proper now, as they probably don’t have quite a lot of revenue, they will hold on to the FHSA deduction and declare it in a future yr after they’re in the next tax bracket and the deduction is value one thing.

Different minimal tax

Lastly, new for 2024 is the up to date various minimal tax (AMT) regime, which imposes a minimal stage of tax on taxpayers who declare sure tax deductions, exemptions or credit to cut back the tax that they owe to very low ranges. Beneath the AMT system, there’s a parallel tax calculation that permits fewer deductions, exemptions, and credit than below the common revenue tax calculation. If the quantity of tax calculated below the AMT system is greater than the quantity of tax owing below the common tax system, the distinction owing is payable as AMT for the yr.

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The excellent news is that the brand new AMT will solely have an effect on taxpayers whose taxable revenue in 2024 is over $173,205. However, when you’re in that tax bracket, and count on to say giant tax deductions in your 2024 return, corresponding to loss carryforwards from prior years, or vital deductible curiosity expense, you’d higher communicate to your tax accountant properly earlier than Dec. 31 to make the most of some last-minute planning to cut back or maybe get rid of that AMT chew for 2024.

Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Property Planning with CIBC Non-public Wealth in Toronto. Jamie.Golombek@cibc.com.

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