As preparations begin for the upcoming tax season, there are new tax measures and changes that may affect your personal income tax liability and overall financial planning.
To help you understand and prepare for the upcoming changes, we compiled a summary of the most significant federal tax changes that may affect your 2024 personal income tax return, as well as changes that may help you save on taxes in 2025 and beyond.
Proposed capital gains inclusion rate increase
The capital gains inclusion rate was proposed to increase from 1/2 to 2/3 for capital gains realized on or after June 25, 2024. Individuals, graduated rate estates, and qualified disability trusts have an annual $250,000 exemption, which allows gains realized up to the threshold to continue to be subject to tax at a 1/2 inclusion rate.
However, on January 31, the Department of Finance issued a news release announcing a deferral of the implementation date of these changes from June 25, 2024 to Jan. 1, 2026. In addition, the Canada Revenue Agency (CRA) indicated that they will grant relief in respect of late-filing penalties and arrears interest until June 2, 2025 for impacted individuals filing a T1 tax return, and until May 1, 2025 for impacted trusts filing a T3 trust return.
For more details, read our Tax Alert, Government announces deferral of capital gains inclusion rate increases.
Government announces deferral of capital gains inclusion rate increase
Proposals to defer increases to the capital gains inclusion rate.
Read moreShort-term rental expenses
Starting in 2024, a new rule was implemented to deny expense deductions on non-compliant short-term rentals, which is a residential property that is offered for rent for a period of less than 90 consecutive days that:
- is located in a province or municipality that does not permit the operation of a short-term rental; or
- is non-compliant with any of the registration, licensing, and permit requirements in the locality in which the property is located.
Where the rule applies, the total amount of expenses that would otherwise be deductible in computing income for the taxation year would be non-deductible. Going forward, where the short-term rental was non-compliant for part of the year, the total amount of rental expenses would be pro-rated to determine the amount that would be denied. However, for 2024 only, if you are compliant with all the local registration, licensing, and permit requirements on Dec. 31, 2024, you will be deemed to be compliant for the entire 2024 taxation year.
Read our article, Income tax changes to short-term rental expense deductions, for more details.
Income tax changes to short-term rental expense deductions
Understand the tax changes to short-term rental expense deductions.
Read moreDonations deadline extended
If you donated in 2024, you may be able to claim a non-refundable tax credit on your 2024 tax return, or any of the next five years’ tax returns, to reduce your taxes payable. In December 2024, the government announced an extension of the deadline for donations to be eligible to be claimed in the 2024 taxation year to February 28, 2025. This change allows more time for the processing of donations that may have been impacted by the Canada Post national strike. On January 23, 2025, the CRA confirmed that it will proceed with administering this deadline extension for charitable donations on a one-time basis for 2024 tax returns.
Alternative minimum tax changes
The alternative minimum tax (AMT) is a parallel tax calculation for individuals and trusts that allows fewer deductions, exemptions and tax credits to be deducted compared to the regular income tax rules. A taxpayer pays AMT or regular income tax, whichever is higher in the year. Significant changes to the calculation of AMT became effective on Jan. 1, 2024.
Included in the changes is the increase in the exemption amount from $40,000 to over $173,000 in 2024. This means that many taxpayers will not owe AMT; however, the new rules can have a significant impact on certain taxpayers, such as those who recognized substantial capital gains, utilized the lifetime capital gains exemption, exercised employee stock options or made large charitable donations in the year.
If AMT is payable for the year, the amount may be recovered during the 7-year carryforward period but only to the extent that regular federal income tax exceeds AMT in the year. For more information, refer to our article, Alternative minimum tax changes that could affect you.
Alternative minimum tax changes that could affect you
Learn about the changes, impact, and implications and what they mean.
Read moreEnhanced Canada Pension Plan
As part of the Canada Pension Plan (CPP) enhancement, your CPP contributions have been increasing annually since 2019 and will continue to increase in 2025 if your income exceeds the year’s maximum pensionable earnings amount. Similar enhancements were made to the Quebec Pension Plan (QPP).
When you file your personal income tax return for the 2024 tax year, remember that your CPP/QPP contributions consist of a base amount and an enhanced amount. While a non-refundable tax credit on the CPP/QPP base amount continues to be available, a tax deduction can also be claimed on the enhanced portion of the CPP/QPP.
Tax-Free Savings Account contribution limit
For 2025, the Tax-Free Savings Account (TFSA) annual contribution limit remains at $7,000 and any unused contribution room will carry forward. Contributions to a TFSA aren't tax deductible and when money is withdrawn, the accumulated contributions and income are received tax-free.
How BDO can help
If you have any questions about these tax changes or how they may apply to your situation, please contact one of our trusted BDO advisors.
The information in this publication is current as of January 31, 2025.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.