New tax measures, and changes to existing ones, will begin affecting Canadians in 2024. But tax experts say the effects on most individuals are likely to be minor, unless they’re high-income earners.
GST/HST exemptions, the elimination of deductions for some short term rentals, new alternative minimum tax rates and changes to Canada Pension Plan (CPP) contributions are among the new measures coming in 2024.
Eliminating short-term rental deductions
The elimination of some short-term rental deductions was announced in the Fall Economic Statement (FES) and kicks in on Jan. 1.
When the federal government announced this change, it justified the move by saying that in Montréal, Toronto and Vancouver in 2020, there were almost 19,000 homes being operated as short-term rentals that could be used for permanent housing.
To encourage owners to return those units to the long-term rental market, some municipalities imposed bans on short-term rentals, while others applied restrictions on how they operate. Despite the bans and restrictions, some owners continued to rent out these properties.
“In this circumstance, where the province or municipality has banned rentals in certain areas — yes, they are banned (but) if you continue to do those activities, the federal government (said) … you must pay tax on them,” said Ameer Abdulla, a partner with EY Private.
The federal government is now eliminating that tax break, denying operators of short-term rentals any income tax deductions for expenses if they operate in provinces or municipalities that have banned short-term rentals.
In provinces that still allow short-term rentals, operators that are not compliant with local regulations and laws will also be denied the deduction.
“This is just the federal government laying on another disincentive to that existing framework,” Abdulla said.
In the FES, the federal government announced it was taking the GST/HST off “professional services rendered by psychotherapists and counselling therapists.”
The government said it was making the change to help ensure that Canadians can afford the care they need.
According to the Parliamentary Budget Officer, the measure will cost $64 million in lost revenue over a five-year period.
“If you really look at what their goal is, they’re trying to use the income tax system to encourage people to do socially beneficial things,” said Daniel Rogozynski, master of accounting co-director at the University of Waterloo.
Rogozynski said that making services more affordable tends to drive up demand for those services. That could be a problem in Canada, where demand for mental health services outstrips supply.
“It’s great to use the tax system to make it more affordable, but I think you still have to deal with the supply and the demand,” he said.
The federal government also began removing the GST from the construction of new rental apartments to spur new housing developments in November. In the FES, it announced it was extending that initiative to new co-op rental housing.
The CPP pension enhancement
Next year, the federal government will start collecting a second level of CPP contributions in order to meet its commitment to boost CPP payments to retirees, an effort that began in 2019.
Combined with the annual increase in CPP contributions, the added second level means an employee’s annual CPP payment will go up by $302 in 2024, increasing from a 2023 maximum of $3,754.45 to a 2024 maximum of $4,045.50.
Employers are required to match the contributions of their employees dollar-for-dollar, which means each employer will also see their per-employee CPP contributions jump by a maximum of $302.
Because self-employed people are both employers and employees, they have to pay both the employer and employee portions.
In 2023 there was only one pension ceiling — the maximum pensionable earnings amount. Last year, that maximum was $66,600. Once the $3,500 exemption is factored in, that means that in 2023 the 5.95 per cent CPP contribution rate was applied on incomes of $63,100 or less.
The first pension ceiling is now $68,500 — or $65,000 after the $3,500 exemption is factored in — bringing the first CPP contribution maximum in 2024 to $3,867.50 for both employers and employees.
But starting on Jan. 1, 2024, a second earnings ceiling of $73,200 comes into force.
To get from a $3,867.50 annual contribution to $4,045.50, the Canada Revenue Agency (CRA) takes the income amount over $68,500, up until it hits $73,200, and multiplies that extra amount by four per cent.
In 2024, the maximum income a person has to pay CPP contributions on under the second ceiling is $4,700, which works out to $188.
In 2025, the CRA estimates that its first CPP income ceiling will rise to $69,700, while the second earnings ceiling will rise to an estimated $79,400. That change will increase the second CPP contribution level from $188 to an estimated $388.
The alternative minimum tax
In the 2023 federal budget, the federal government said it was making significant changes to the alternative minimum tax rate.
The alternative minimum tax rate serves as a kind of safety valve preventing high income taxpayers from using deductions and other mechanisms to disproportionately lower their tax bills.
Since 1986, the alternative minimum tax has meant that, regardless of available deductions or tax measures, a person must pay at least 15 per cent tax on income above $40,000.
While it has not yet passed enabling legislation, the Liberal government has said the alternative minimum taxable income amount will rise to $173,000, and the rate that income above that amount is taxed will rise to 20.5 per cent.
Rogozynski said that while the measure was designed to target high-income earners, ordinary Canadians could be swept up.
That could happen if someone earning less than that amount sells a rental property, liquidates stocks or experiences some other form of income spike taking their annual income temporarily over $173,000.
“Let’s say you make a pile of money because you sell your shares, and then the subsequent years you don’t make as much money because you don’t own shares of a company anymore … There are provisions to recover that over the following seven years,” Rogozynski told CBC News.
Other notable tax changes for 2024
On April 1, 2024 the price on carbon goes up from $65 a tonne to $80 a tonne in provinces where the federal backstop applies.
The backstop does not apply in Quebec, British Columbia and the Northwest Territories because they have their own carbon pricing systems that meet the federal standard.
In provinces using the federal backstop, the price on carbon is applied to emitting fuels through fuel charge rates that vary from fuel to fuel based on the amount of CO2-equivalent emissions they generate when burned.
On April 1, provinces and territories using the federal backstop will see gasoline fuel charges rise to 17 cents a litre from the 2023 rate of 14 cents a litre, while the propane fuel charge will increase to 12 cents a litre from 10 cents.
Ninety per cent of government revenues from the carbon tax are returned to households through a rebate program. The other 10 per cent is directed to programs to help businesses, schools, municipalities and other grant recipients reduce their fossil fuel consumption.
The parliamentary budget officer has consistently found that nearly all households receive more from the carbon tax rebate than they pay in direct and indirect costs. Only households in the highest income quintile are projected to pay out more than they receive — because they consume more.
Income taxes, EI premiums and TFSAs
Beginning Jan. 1, federal income taxes in Canada will rise 4.7 per cent across all tax brackets, compared to a 2023 rise of 6.3 per cent. Tax bracket thresholds and basic personal exemption amounts have also been adjusted to account for inflation.
Rogozynski said that because inflation has come down over last year, so has the income tax rate increase. Income tax rates were increased by 1 per cent in 2021 and 2.4 per cent in 2022.
The annual tax free savings account contribution also rises from $6,500 in 2023 to $7,000 in 2024.
The maximum insurable earnings ceiling for employment insurance rises to $63,200 starting Jan. 1, up from $61,500 in 2023, which means that people only pay the $1.66 per $100 earned on the first $63,500 they earn.
For 2024, that means the maximum annual EI premium a person earning at least $63,500 will have to pay is $1,049.12, compared to a 2023 maximum of $1,002.45.
The ‘sneaky’ change to bare trusts
When Canadians do their taxes in 2024, they’ll be required to report any involvement in “bare trusts.”
Unlike express trusts, where people seek out a lawyer to create a trust, bare trusts happen almost accidentally when a parent cosigns a mortgage for a child and becomes partial owner, or when an aging parent puts their kids down as partial owners of their house in anticipation of an impending death.
In those cases, the bare trust does not earn any money for the trustee to report in a given tax year. In 2024, CRA will for the first time require that Canadians fill out a T3 return for the previous year naming the trustees, beneficiaries and settlors of each trust.
Rogozynski describes this change as “sneaky” because even though Canadians are not going to be taxed on a trust’s value, failing to report they are a member of a bare trust could result in a fine of $2,500, or five per cent of the value of all property in the trust, whichever is higher.