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Upcoming Canadian Tax Changes: What You Need to Know for the 2024 Tax Season and Beyond

As the tax season approaches, Canadians are preparing for a series of significant tax changes. These updates, aimed at promoting fairness, fostering economic growth, and addressing environmental concerns, will impact individuals and businesses alike.


Understanding these changes is key to proactive financial planning and compliance. Let’s break down the most notable updates and how they might affect you.


1. Capital Gains Inclusion Rate Adjustment

The government has increased the capital gains inclusion rate from 50% to 66.67% for certain individuals and entities. Starting June 25, 2024, gains exceeding $250,000 annually will be subject to the new rate. While aimed at high-income earners, this change underscores the importance of careful investment planning.


2. Canadian Entrepreneurs' Incentive

Entrepreneurs take note: when it comes time to sell a business, a reduced capital gains inclusion rate of one-third will soon apply to up to $2 million of eligible lifetime capital gains. This new incentive is designed to encourage investments in Canadian businesses, providing a financial boost for those driving economic growth, and is one tool among many to support Canada's tech sector. The CEI will be added as new section 110.63 of the Income Tax Act (Canada) and will be available as of January 1, 2025.


Find out more by following the link below.


3. Enhanced Alternative Minimum Tax (AMT)

From January 1, 2024, AMT rules are getting stricter. AMT is an alternative tax calculation that allows fewer tax credits, deductions, and exemptions than provided under ordinary personal income tax legislation. The AMT rate is increasing from 15% to 20.5% of adjusted taxable income for years beginning after 2023. These changes ensure that high-income earners, even with significant deductions, contribute a minimum level of tax for the year. If you have complex income sources, this update could directly impact your tax liability.


4. Inflation-Indexed Tax Brackets

Good news for taxpayers: to counteract inflation, federal tax brackets will rise by 4.7% in 2024. This means your purchasing power is preserved, and you’re less likely to be pushed into a higher tax bracket simply due to inflationary income adjustments.


The 2024 income tax rates for individuals may be found here:


5. Increased CPP Contributions

Starting January 1, 2024, both employees and employers will face higher CPP contributions as maximum pensionable earnings increase. The CPP enhancement adds two additional components to the base CPP; the first additional component was phased in between 2019 and 2023, and the second additional component is being phased in between 2024 and 2025 (coined CPP2).


While the year's maximum pensionable earnings, or YMPE, will not change, a second earning ceiling, known as the year's ADDITIONAL maximum pensionable earnings, or YAMPE, has been introduced. The YAMPE will be 7% higher than YMPE in 2024 and 14% higher in 2025. As such, if you earn wages above the 2024 YMPE of $68,500, you will be subject to CPP2 contributions up to the amount of YAMPE, or $73,200 in 2024. While this means slightly less take-home pay, it translates into more robust retirement benefits down the road.


6. Lifetime Capital Gains Exemption (LCGE) Increase

For business owners and farmers, the LCGE will rise to $1.25 million (up from $1,016,836) for the disposition of qualified farm and fishing property or qualified small business corporation shares after June 25, 2024. The LCGE is provided as a deduction when calculating an individual's taxable income. This change will increase the maximum lifetime deduction from $508,418 to $833,333 when taking into consideration the basic inclusion rate of two-thirds as discussed in bullet point #1 above. This change provides greater tax relief for those selling qualifying assets.


7. Share Buyback Tax

In June 2024, Bill C-59, the Fall Economic Statement Implementation Act, 2023, received Royal Assent. With the passage of this legislation, publicly traded companies will face a 2% tax on share buybacks starting in 2024. This measure is designed to encourage reinvestment in operations and employees rather than stock repurchases.


What This Means for You

These updates represent more than just new rules—they reflect a strategic shift in how Canada is addressing economic, social, and environmental priorities. For individuals and businesses alike, staying informed and adapting early is essential.


As professional accountants, we recommend:

  • Revisiting Your Financial Plans: Ensure your strategy aligns with the new tax landscape.

  • Engaging in Proactive Discussions: Talk to your accountant about potential impacts and opportunities.

  • Leveraging New Incentives: Take advantage of new credits and exemptions where possible.


    #CanadianTaxes #TaxSeason2024 #FinancialPlanning





 
 
 

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