Tax Update 2024

Volunteer Firefighters and Search and Rescue Volunteers Tax Credits

Both credits will be doubled from $3,000 to $6,000.

Alternative Minimum Tax (AMT)

Fundamental changes were announced in the 2023 budget which will broaden the base of taxpayers subject to AMT:

• AMT rate has been increased from 15% to 20.5%
• Basic exemption of AMT is increased from $40,000 to $173,000
• Capital Gains inclusion rate for the purposes of AMT has been increased from 80% to 100%
• Net capital loss carryforward deduction is limited to 50%
• Lifetime Capital Gains Exemption deduction increased to 70% of gain from 50%, gain inclusion rate increased from 80% to 100%
• Allowable Business Investment Loss (ABIL) deduction is limited to 50%
• Employee stock option benefit included in the AMT base is increased from 50% to 100%
• Most deductions for the purpose of AMT will be limited to 50% (see note 1)
• Most non-refundable tax credits for the purpose of AMT will be limited to 50% (see note 2)
• Capital Gains inclusion rate for stocks donated for the purposes of AMT has been increased from 0% to 30%

Changes in Alternative Minimum Tax Elements for 2024

Note 1 - Deductions being limited to 50% include:

• Employment expenses, other than those to earn commission income;
• Deductions for Canada Pension Plan, Quebec Pension Plan, and Provincial Parental Insurance Plan contributions;
• Moving expenses;
• Child care expenses;
• Disability supports deduction;
• Deduction for workers' compensation payments;
• Canadian armed forces personnel and police deduction;
• Interest and carrying charges incurred to earn income from property;
• Deduction for limited partnership losses of other years;
• Non-capital loss carryovers; and
• Northern residents deductions.

Note 2 - Almost all non-refundable tax credits would be reduced to 50% under this new measure subject to certain exceptions. The Special Foreign Tax Credit would continue to be allowed in full and would be based on the new AMT tax rate.

The proposed AMT would continue to use the cash (i.e., not grossed-up) value of dividends and fully disallow the Dividend Tax Credit.

Some non-refundable credits that are currently disallowed would continue to be disallowed in full: the Political Contribution Tax Credit, the Labour Sponsored Venture Capital Corporations Credit, and the non-refundable portion of investment tax credits. However, as per an amendment in the 2024 Budget, these credits would be eligible for the AMT carry-forward.

Budget 2024 amendments

• To fully allow deductions for the Guaranteed Income Supplement, social assistance, and workers' compensation payments;
• Charitable Donation Tax Credit can be claimed at 80% instead of 50%;
• To allow individuals to fully claim the federal logging tax credit under the AMT;
• To fully exempt Employee Ownership Trusts from the AMT; and
• To allow certain disallowed credits under the AMT to be eligible for the AMT carry-forward (i.e., the federal political contribution tax credit, investment tax credits, and labour-sponsored funds tax credit).

Disability Supports Deduction

Eligible expenses have been expanded to include:

• Where an individual has a severe and prolonged impairment in physical functions:
  • The cost of an ergonomic work chair, including related amounts paid for an ergonomic assessment to a person engaged in the business of providing such services;
  • The cost of a bed positioning device, including related amounts paid for an ergonomic assessment to a person engaged in the business of providing such services; and
  • The cost of purchasing a mobile computer cart.
• Where an individual has an impairment in physical or mental functions:
  • The cost of purchasing an alternative input device to allow the individual to use a computer; and
  • The cost of purchasing a digital pen device to allow the individual to use a computer.
• Where an individual has a vision impairment, the cost of purchasing a navigation device for low vision.
• Where an individual has an impairment in mental functions, the cost of purchasing memory or organizational aids.
• Expenses for service animals as defined under the Medical Expense Tax Credit rules.

Home Buyers' Plan

• Withdrawal limit has been increased from $35,000 to $60,000. Applicable for the 2024 and subsequent tax years.
• Deferral of the start of the 15-year repayment period by an additional three years for participants making a first withdrawal between January 1, 2022, and December 31, 2025.

Short-term rentals

• First payment would be required the fifth year after withdrawal.
• As announced in the 2023 Fall Economic Statement, the federal government intends to deny income tax deductions for expenses incurred to earn short-term rental income (Airbnb, Vrbo etc..), including interest expenses, in provinces and municipalities that have prohibited short-term rentals. This rule would also be applicable for short-term rental operators that are not compliant with the applicable provincial or municipal licensing, permitting, or registration requirements.

The T776 form has been amended to reflect this measure. First, distinguish between total rental income and short-term rental income.

Next, break down the personal portion and short-term rental portion of total expenses.

Complete the table indicating the portion of short-term rental expenses that are non-compliant by providing:

• The address of the property
• Number of units
• Short-term portion of rental expenses
• Number of days the short-term rental was non-compliant
• Number of days the property was a short-term rental

The non-compliant portion of short-term rental expenses will be the result of:

Short-term portion of rental expenses X (Number of days the short-term rental was non-compliant / Number of days the property was a short-term rental).

This amount is then deducted from net rental income.

Charitable Donations

Donations made from January 1 to February 28, 2025, can be claimed in the 2024 or 2025 tax return.

CPP additional component

Starting in 2024, a second, higher earnings limit will be introduced. This new limit, known as the year’s additional maximum pensionable earnings, will not replace the original limit, known as the year’s maximum pensionable earnings. Rather, it creates 2 different ranges of earnings that are protected by CPP.

• The original range, which goes to the original limit (set at $68,500 for 2024), and
• An additional range for earnings between the original limit and the new one (set at $73,200 for 2024)

Pensionable earnings between $68,500 and $73,200 will be subject to “second CPP contributions” (CPP2), with a contribution rate of 8% (split evenly employer/employee at 4%). This maximum limit will increase by an estimated 14% in 2025.

A new box has been added to the T4 slip, 16A, to indicate the second contribution.

The CPP2 will be claimed as a deduction on the tax return.