As Canada steps into 2024, a series of comprehensive tax reforms are set to roll out, impacting areas ranging from GST/HST exemptions to adjustments in the Canada Pension Plan (CPP). These changes are expected to significantly affect various aspects of taxation for individuals and businesses across the nation.
Elimination of Some Short-Term Rental Deductions
In a move to tackle the housing crisis in major cities such as Montreal, Toronto, and Vancouver, the 2024 tax reform will eliminate certain deductions associated with short-term rentals. This measure, announced in the Fall Economic Statement, aims to encourage the conversion of short-term rentals to long-term housing. Under the new rule, property owners in areas where short-term rentals are banned will no longer be able to claim income tax deductions for these properties.
GST/HST Exemptions Expanded to Mental Health Services
In a significant shift, the government has exempted psychotherapy and counselling therapy services from GST/HST. This step, aimed at enhancing access to mental health care, is expected to reduce government revenue by $64 million over five years. The exemption is part of a broader initiative to make mental health services more affordable for Canadians.
Canada Pension Plan (CPP) Contributions to Increase
The CPP will see notable changes with an additional level of contributions being introduced. This move is part of a strategy to boost future pension payments, starting in 2024. Employees and employers will both face an increase in their annual CPP payment, with a new earnings ceiling also being introduced to calculate these contributions.
Revisions to the Alternative Minimum Tax Rate
The alternative minimum tax rate system will undergo significant changes in 2024. The government is raising the threshold for taxable income and increasing the tax rate for high-income individuals. This reform is designed to ensure that wealthier Canadians pay a fair portion of taxes, even after accounting for various deductions and credits.
Carbon Tax Rate Increase
In provinces that follow the federal carbon tax backstop, the rate will increase from $65 to $80 per tonne. This increase in the carbon tax is a part of Canada’s environmental strategy. Most households are expected to offset this increase through a government rebate program.
Adjustments in Federal Income Tax Brackets and Savings Accounts
The tax reform also includes adjustments to the federal income tax brackets and personal exemption amounts in response to current inflation rates. Furthermore, the tax-free savings account contribution limit will be increased, providing Canadians with more opportunities for tax-efficient savings.
New Reporting Requirements for ‘Bare Trusts’
A significant addition in 2024 is the introduction of mandatory reporting for involvement in ‘bare trusts’. These trusts often arise in everyday financial arrangements, like a parent co-signing a mortgage for a child. The new requirement is part of an effort to enhance transparency in financial transactions, with severe penalties for non-compliance.
As these tax reforms take effect, Canadians are advised to familiarize themselves with the changes and consider seeking professional advice to navigate the new tax landscape. These reforms are expected to have a broad impact, from individual taxpayers to large corporations, and are aimed at addressing key social issues while promoting economic stability.