The 2024 tax season is officially here, and a new year means new rules and changes you need to be aware of before you file. Not all the Canadian tax changes will impact everyone the same way—some are more likely to affect higher-income earners.

Whether it's updates on claiming work-from-home benefits or how new savings accounts might work in your favour, this year introduces a few shifts that could make a big difference in how you approach your taxes. So, whether you're filing your taxes, running a business, or planning your family's financial future, understanding these changes is key to making sure you're taking advantage of all the opportunities and getting caught out by new rules.

Let's review some of the most significant updates for the 2024 tax season, including crucial dates and numbers for your savings accounts.

Key Canadian Tax Changes in 2024

1. More Complicated Work-from-Home Claims

If you’re a remote or hybrid worker, there are some significant changes in how you claim your work-from-home expenses. Previously, the COVID-19 pandemic introduced a flat-rate method, allowing part-time or full-time home workers to claim $2 per day up until the limit of $500. Unfortunately, this year marks the end of this simplified process for claiming work-at-home expenses.

Moving forward, to claim work-at-home expenses, you'll need to switch to the detailed method and obtain a T2200 form signed by your employer. To claim the accurate amount on your taxes, you’ll have to meticulously gather records of eligible home office expenses. Eligible expenses typically include internet, electricity, and rent.

It’s important to note that while a portion of rent can be claimed as work-from-home expenses, mortgage interest payments cannot be. This means that homeowners will not be able to claim a substantial amount.

One more factor to consider is that you must be working mainly from home to claim these work-at-home expenses this year. That means you’ll need to be working at least 50 per cent of at least four consecutive weeks in a year at home. Unfortunately, some hybrid positions may no longer be eligible to receive tax credits for work-at-home expenses.

2. New Tax Credit on Multigenerational Home Renovations

Did you know that there’s a growing trend of multigenerational living in Canada? To support families living in multigenerational homes, the Canadian government has introduced a new tax credit for renovations.

The goal of this new tax credit is to help take away some of the financial burden related to adding a second unit or accessibility upgrades for a senior or disabled adult in a home. If you’re eligible, you can claim up to $50,000 in qualifying expenses for each renovation that meets the criteria. The tax credit you can expect is 15% of your costs, up to a maximum of $7,500 per eligible claim.

3. House Flippers Will Need to Pay More

This year, the CRA has clarified the distinction between business income and capital gains for people who take part in house flipping. This new distinction means that in some cases, you could be taxed more if the government believes you’re flipping houses for profits.

In the past, it was easy to claim primary residence exemption to avoid paying taxes on the house’s sale. Now, if you sell any home within 12 months of purchasing it, the government will consider it as business income, subjecting it to full taxation. You’re still able to get exemptions from this rule—for instance, life circumstances like death, divorce, or disability.

4. Goodbye to Short-Term Rental Deductions

If you’ve invested in a short-term rental property in cities like Montreal, Toronto, or Vancouver, you could be affected by this change.

At the beginning of the year, the federal government decided to phase out specific tax deductions for short-term rentals. In the three cities we mentioned above, there were almost 19,000 homes used as short-term rentals in 2020[DW1] . The government hopes that by removing the short-term tax deductions, the owners of these homes will be encouraged to put them on the long-term rental market.

This aligns with the actions of several municipalities that have already acted by completely banning short-term rentals or imposing strict operation regulations. Unfortunately, some property owners have persisted in renting out their properties short-term, despite these restrictions.

In these situations, the federal government would still ask illegally operated short-term rental owners to pay taxes; therefore, they’d have access to deductions. These new changes mean that they will lose the ability to claim any short-term rental deductions, backing up the already existing rules laid out by certain municipalities.

5. Implications from the First Home Savings Account

While this doesn’t impact older or more well-off individuals directly, you still want to be aware of the First Home Savings Account that was introduced in 2023. If you’re looking to help your child in purchasing their first home, discussing this savings account with them will be beneficial.

The FHSA is a tax-advantaged savings account designed to help Canadians save for their first home. Contributions to the FHSA are tax-deductible, and income earned within the account, as well as withdrawals for purchasing a first home, are tax-free.

This new account has significant implications for potential first-time homebuyers, offering a powerful tool to enhance their savings strategy.

6. Changes to CPP & EI Contribution Amounts

This year introduces changes to the Canada Pension Plan (CPP) and Employment Insurance (EI) contributions. These changes won’t impact everyone, but it’s good to understand the new guidelines.

For the CPP, there's a new setup where two maximum earnings ceilings will be in play, instead of the one previously. Initial contribution rates remain the same for anyone earning up to $68,500 annually. In contrast, anyone earning between $68,500 and $73,200 will see an additional 4% taken from their pay for this range, capping at an extra $188.

The changes to CPP, along with EI contribution adjustments, will likely affect middle-income workers and their employers most heavily. For instance, employing someone at a salary of $73,200 in 2024 will mean a 7.5% employment tax cost for the employer, and employees will contribute 7%, totaling a 14.5% contribution to CPP and EI combined. This setup not only increases tax expenses but also adds to the administrative load.

Concerning the EI program updates, the government increased maximum insurable earnings to $63,200 for 2024, continuing its annual increase from previous years. This adjustment isn’t anything abnormal and is part of the usual updates to the EI program.

7. Stricter Trust Reporting Rules

The increase in trust reporting rules will impact many people, both business owners and individuals this year. And many of these people may not even realize that they need to file a trust return.

This includes situations involving a bare trust, where the asset's legal holder is not the actual beneficial owner but holds it for someone else's benefit. Common examples include a parent holding the title of a child’s home to assist in obtaining a mortgage, or shareholders opening a corporate bank account with the corporation as the beneficial owner of the funds.

Taxpayers should review whether they hold titles or assets without being the true beneficial owners, such as not receiving the benefits from the sale of an asset or being responsible for its costs or risks.

If you are in an arrangement, you may need to file a trust return by April 2, 2024. The process aims to ensure compliance but carries the risk that many could unintentionally fail to meet legal requirements.

While many affected may not owe additional taxes, they could incur costs for professional services to complete and submit the required trust return. Non-compliance could result in penalties of $25 per day, with a maximum of $2,500.  A gross negligence penalty may also apply which is the greater of $2,500 and 5 per cent of the highest amount of the fair market value of all the property held by the trust at any time in the year. CRA will waive late-filing penalties for bare trusts, but only for the 2023 tax year.

When is the Tax Filing Deadline for 2024?

The Canada Revenue Agency (CRA) opened its portal for filing 2023 income taxes on February 19. In the coming months, you'll need to file your taxes for last year's earnings—remember to consider the many tax and deduction changes we discussed above.

The deadline for individual Canadians to file their income taxes with the CRA is April 30, 2024. If you’re self-employed, the deadline is extended to June 15th; however, if you owe money for your 2023 taxes, you must pay by April 30th, regardless of your employment status.

Make the Most of Tax Season with Personalized Support

Understanding the complexities of tax season can be challenging, particularly if you're juggling both business and personal finances or managing a varied portfolio of assets. With the introduction of new tax changes and requirements this year, understanding how these updates might affect your tax filings is crucial.

Working with a wealth management advisor to come up with a personalized strategy and support you during tax season can help ensure you're taking full advantage of the available deductions and credits, ultimately optimizing your tax situation. Remember, early preparation and staying informed are key to a stress-free tax season.

The Insightful Wealth team has years of experience helping busy professionals and affluent retirees to strengthen their financial holdings, investments, and tax optimization strategies. Work with our caring team who puts you and your unique needs first. Contact us for a free initial consultation.

This article has been prepared by Raymond James Ltd. (“RJL”). It expresses the opinions of the writer, and not necessarily those of RJL. Statistics, factual data and other information are from sources believed to be reliable, but accuracy cannot be guaranteed. It is furnished on the basis and understanding that RJL is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. RJL, its officers, directors, employees and their families may from time to time invest in the securities discussed in this newsletter. It is intended for distribution only in those jurisdictions where RJL is registered as a dealer in securities. Distribution or dissemination of this newsletter in any other jurisdiction is strictly prohibited. This newsletter is not intended for nor should it be distributed to any person residing in the USA. Raymond James Limited is a Member Canadian Investor Protection Fund.

The information above is from sources believed to be reliable, however, we cannot represent that it is accurate or complete and it should not be considered personal tax advice. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters.