Tax Season and Understand Tax Changes in 2024/2025
MEMO TO M.Y. UNWAVERING CLIENTS
I wish to use this opportunity to thank my continuing clients for their unwavering support of using my services and expertise. If there is one (of many) reminder of the passage of time, it is how often you see my Tax Circular and how I show up in your inbox this time of the year. To that, I, and the staff of M.Y. Accounting Firm, sincerely thank you.
With that, I wish to also express to you my insights as to what I have observed with the CRA in 2024, and my forecast for 2025.
My observation with the CRA in 2024 was that they were relentless. They send out automated letters with no basis and have agents review the submission 3 months after. It costs $1 for the CRA to mail a letter, but several hundreds of dollars for a client to respond in kind. And those that have missed the letter, would get reassessed for a balance. It felt like they were throwing darts at a wall in hopes some taxpayers wouldn’t respond.
In my 20 years of experience, the CRA and its’ agents had come from assisting and understanding taxpayers, to a punitive regime where agents take on a more mechanical approach of crossing their t’s and dotting their i’s. The irony was that their punitive approach was not because the CRA agents were competent, but in fact the very opposite - they were severely incompetent. When you have staffers not well versed in their jobs, the next best approach is give them a checklist and just keep checking off. However, as we know it, tax and the relevant tax laws are hardly a checklist. The result without a doubt was unfair judgement due to their own incompetence which costed my client extra dollars to fend off the case. Imagine what they have caused on the less fortunate whom are not represented or had their taxes done at pop up booths.
Having said that, when we are paying 25% - 35% on average of taxes on our T4, and yet mortgage, car payments, and food combined nets off 60% of family income, it would be in CRA’s interest to loosen its calls and letters. There can’t be a shrinking economy and heavy taxes at the same time.
2025 will be a interesting year to say the least. With so many variables ahead of us, it is questionable how CRA will enforce our self-reporting tax system or, as I think they ought to, to be less stringent and more humane.
Thank you for reading.
IMPORTANT DEADLINES
The deadline to file your 2024 tax return is April 30, 2025.
The deadline to contribute to your 2024 RRSP is March 1, 2025 (to claim as a deduction on your 2024 tax return).
Taxpayers who are reporting capital gains realized in 2024 on their returns are being given additional time to file, due to the complications that arose from the botched implementation of the capital gains inclusion rate which was supposed to take effect as of June 25, 2024, but was deferred to 2026. The CRA announced that it would grant relief of late-filing penalties and interest until June 2, 2025, for individuals who need to report capital gains.
CRA now also offers LIVE CHAT! To access this, simply log into My Account. Gone are the days of waiting on the phone line for 30 minutes. The online chat service is available in My Account Monday to Friday from 8:00 am to 3:30 pm ET.
TIPS FOR PREPARING FOR TAX FILING
When it comes to gathering tax information, I suggest starting now. This will avoid any last-minute scrambling (or surprises) as we approach the tax filing deadline.
Here are a few tips to get yourself organized:
Collect and sort all of your expense receipts, medical receipts, bills, etc. I'd suggest being proactive and keeping a scanned copy (or paper file) of all receipts
If you are a Sole Proprietor, ensure you have your bank statements for the past 12 months
Also, for Sole Proprietors, having your business expenses sorted by category on a spreadsheet is all I need to pull together your tax information. (*Note - your spreadsheet needs a robust summary of your expenses, including detailed information on business reason, date, amount, etc.)
COMPLETENESS IS KEY
Many of my clients don't understand how imperative it is for them to be as transparent as possible when updating me on major life events. Something as innocuous as your child starting a private school, having a child, or the passing of a family member, can impact your taxes.
Ensuring I have the full picture is key. Keeping me apprised of any major OR minor changes in your life will help maximize any refund you are eligible to receive while minimizing any money owed on your taxes.
TAX CHANGES FOR 2025
As with most things, tax and benefit amounts are affected by inflation. For 2025, some tax-bracket thresholds and amounts relating to non-refundable credits take effect on January 1, 2025.
But increases for some benefits, including the Canada Child Benefit and the GST/HST credit, take effect on July 1, 2025 (as these benefit programs operate on a different schedule).
IMPORTANT TAX RELATED INFORMATION
Short Term Rentals - This is a big change!
If you have a non-compliant short-term residential rental property that is rented for a period of less than 90 consecutive days, as of Jan. 1, 2024, you’re no longer able to deduct expenses against the income from that property.
A non-compliant short-term rental, is a short-term rental that:
is located in a province or municipality that does not permit short-term rentals to operate at that location; or
does not comply with all applicable provincial or municipal registration, licensing and permit requirements for operating a short-term rental.
Work At Home Expenses - Did you know more than $1.47 Billion was claimed on WFH in the 2023 tax year? A staggering 41% increase from 2022.
To date, the CRA provided the following details on the process for claiming home office expenses for the 2024 taxation year:
Percentage of employment duties performed at home office — If the employee was required to work from home, the Form T2200 for 2024 requires the employer to answer “yes” or “no” to the following two questions:
“Has the employee worked more than 50% of the time from the work space in their home for a period of at least 4 consecutive weeks in the year?”; and
“Has the employee used the work space in their home regularly and continuously for in-person meetings with clients or other people while doing their work?”
If the answer to either question is “yes” and the other conditions for the deduction are satisfied, the employee can claim home office expenses for 2024. This is a welcome change from the Form T2200 for 2023, which required the employer to approximate the percentage of the employee’s duties of employment that were performed from their home office. This change relieves the need for employers to closely monitor where the employee worked over an extended period of time in order to accurately complete Form T2200.
Eligible employees — Consistent with the Form T2200 for 2023, the Form T2200 for 2024 specifies that the condition that the employee must be “required” to work from home does not have to be part of the employee’s employment contract and may be a written or verbal agreement.
Administrative efficiency — Consistent with the Form T2200 for 2023, the Form T2200 for 2024 was designed to be easier for employers to complete where the employee is only seeking to claim a deduction for home office expenses. After completing the questions regarding home office expenses, the employer can skip to the “employer declaration” section.
Canada pension plan (CPP) and Quebec pension plan (QPP) enhancement
As of January 2024, a second additional contribution of four per cent was required by both employees and employers on pensionable earnings greater than the year’s maximum pensionable earnings ($68,500 in 2024) but not more than the year’s additional maximum pensionable earnings ($73,200 in 2024). This amount is reported in box 16A (CPP) or box 17A (QPP) of your T4 slip. For self-employment income and other earnings, the rate for second additional contributions is eight per cent. For more information, see Schedule 8 of the 2024 tax package.
Capital gains
As discussed, the updated Schedule 3, Capital Gains or Losses for 2024, is still asking taxpayers to separately report gains or losses before and after June 25, 2024. The CRA noted that while the inclusion rate increase was deferred until 2026, it is keeping the Period 1 and Period 2 reporting on the T1 return “to ensure consistency with the tax slips that have already been published, those currently being issued to taxpayers and those filed with the CRA.”
2023’s New Trust Reporting Requirements continues to be exempted for 2024 - The Canada Revenue Agency (CRA) will not require bare trusts to file a T3 Income Tax and Information Return (T3 return), including Schedule 15 (Beneficial Ownership Information of a Trust) for the 2024 tax year, unless the CRA makes a direct request for these filings. This is a continuation of the exemption from the trust r
Increase in unpaid tax penalty
If you file late for 2024, the penalty is now 5% of your 2024 balance owing, plus an additional 1% for each full month that you file after the tax filing due date—to a maximum of 12 months.
Disability Tax Credit
Applying for the Disability Tax Credit has been notoriously a lengthy process. In 2023, the CRA made this process easier by going digital! Now, via My CRA Account, individuals wanting to apply can complete Part A of the application and once issued a reference number, provide this to your qualified medical practitioner who can then complete Part B digitally for you.
There’s no need to print and bring the forms to your medical practitioner anymore.
IMPORTANT CREDITS
Air Quality Improvement Tax Credit: Eligible businesses can claim 25% of their qualifying ventilation upgrades to a maximum of $10,000. In other words, a reduction to your taxes of up to $2,500.
Automobile Income Tax Deduction Limits:
The following changes to limits and rates will take effect as of January 1, 2024:
The ceiling for capital cost allowances (CCA) for Class 10.1 passenger vehicles will increase to $37,000 from $36,000, before tax, in respect of new and used vehicles acquired on or after January 1, 2024.
The limit on deductible leasing costs will be increased to $1,050 from $950 per month, before tax, for new leases entered into on or after January 1, 2024.
The maximum allowable interest deduction will be increased to $350 from $300 per month for new automobile loans entered into on or after January 1, 2024.
In provinces, the limit on the deduction of tax-exempt allowances paid by employers to employees who use their personal vehicle for business purposes will increase by two cents, to 70 cents per kilometre, for the first 5,000 kilometres driven, and to 64 cents for each additional kilometre. For the territories, the limit will also increase by two cents, to 74 cents per kilometre, for the first 5,000 kilometres driven, and to 68 cents for each additional kilometre.
The CCA ceiling for Class 54 zero-emission passenger vehicles ($61,000 before tax for new and used vehicles) will remain the same for 2024, as this limit continues to be appropriate.
The general prescribed rate used to determine the taxable benefit of employees relating to the personal portion of automobile expenses paid by their employers will remain at 33 cents per kilometre for 2024. For people who are employed principally in selling or leasing automobiles, the rate used to determine the employee’s taxable benefit will remain the same, at 30 cents per kilometre for 2024.
Home Accessibility Tax Credit (HATC): Those 65 and older and are eligible for the Disability Tax Credit, and can claim renovation costs related to accessibility up to $20,000. In other words, up to a $2,500 reduction to your taxes.
Labour Mobility Deduction (LMD): This new deduction allows tradespeople, apprentices, and employees working in construction to claim meals and lodging expenses paid to earn income at a temporary work location.
Further Reading = 20 Popular Canadian Tax Deductions and Credits for Tax Year 2024 - https://turbotax.intuit.ca/tips/popular-canadian-tax-benefits-deductions-and-credits-in-2023-14180?srsltid=AfmBOoqsOVNXteS8hU7O74FrDtxb6wbHcSTw1WiNkOLzjtvpHN0ZGq2f
Some Highlights:
Child Disability Benefit (CDB)
The Child Disability Benefit (CDB) is a tax-free monthly payment made to families who care for a child under age 18 with a severe and prolonged impairment in physical or mental functions.
To get the Child Disability Benefit:
you must be eligible for the Canada Child Benefit (CCB)
your child must be eligible for the Disability Tax Credit
Note: If you are already getting the Canada Child Benefit (CCB) for your child who is eligible for the Disability Tax Credit (DTC), you do not need to apply for the CDB, because you will get it automatically.
Medical expenses can add up quickly in the run of a year. Everything from routine dental visits to prescriptions to doctors’ fees could earn you a credit at tax time.
To get the most out of your claim, it’s usually best to have one spouse claim all the medical expenses for the immediate family (you, your spouse, and kids under 18) and any dependants you support.
Some often-overlooked medical expenses can include:
private medical insurance premiums
tutoring for children with disabilities
home renovations that improve mobility or access
travel expenses to seek medical treatment (over 40 km one-way)
prescription contact lenses or glasses
dentures and dental implants
fertility expenses
TAX BRACKET CHANGES
All income tax brackets have been changed due to inflation, using the new 6.3% rate.
The new federal tax brackets are:
15% on income up to $55,867
20.5% on income over $55,867 up to $111,733
26% on income over $111,733 up to $173,205
29% on income over $173,205 up to $246,752
33% on income over $246, 752
FIRST HOME SAVINGS ACCOUNT (FHSA)
Due to launch as early as April 1, 2023, first-time homebuyers can save $40,000 to purchase their first home in Canada on a tax-free basis.
Similar to RRSPs, contributions are tax-deductible, but withdrawals for the purchase of a first home will be non-taxable.
HOME FLIPPING TAX
Effective on January 1, 2023, properties sold that are owned less than 12 months (specifically, 365 consecutive days) will be considered to have “flipped”. Any profits from the deal will be taxed as business income. This holds true, even if it is by definition a principal residence, in accordance to the Income Tax Act.
Regular business income is taxed at personal marginal rates and not considered a capital property (whereby 50% of the capital gains are taxable at the marginal rate). In other words, 100% of the appreciated value is taxed.
Exceptions include a certain number of life events including the death of the individual or a related party, an addition to a household, breakdown of a relationship, a threat to personal safety, serious illness or disability, work relocation or termination, insolvency or destruction or expropriation of the home.
ONTARIO CREDITS
The Ontario Seniors Care at Home Tax Credit: This tax credit is to help seniors with eligible medical expenses and those with attendant care. The credit is equal to 25% of your eligible medical expenses up to $6,000. In other words, a maximum refundable credit of $1,500.
The Seniors’ Home Safety Tax Credit: Like the HATC, this credit allows 25% up to a maximum of $10,000 in eligible expenses. The maximum credit is equal to $2,500 per year.
FOREIGN TAXES
This for 2024 seemed like a favorite for the CRA. If you worked in a foreign country and is still a resident of Canada, your paystub is not sufficient proof of taxes paid. You have to have either filed a tax return in the foreign country or have somehow shown proof of tax payment to the foreign country. Otherwise, you will be double taxed and the foreign taxes paid will not act as tax credits!
TAX PREPARATION CHECKLIST
The following list is comprehensive so not all may be applicable to you:
T-Slips (T5, T4, T3, T4(OAS), T4A(CPP), T4E, T4A)
Employment expenses (if eligible, you should be given a form T2200 filled by employer). Common expenses include, telephone, auto costs, insurance, supplies etc.
RRSP Contribution slips
Investment summary of transactions (For capital gains/loss calculation. This can be downloaded from your trading platform like Questrade, TD Waterhouse)
Did you sell a principle residence during the year? If so, please provide the sale documents
Did you sell a property during the year? If so, please provide the sale documents
Interest expenses for investment purposes (Loans incurred to invest into a small business, or incurred for trading)
Business/Commission income and expenses (Auto expenses, auto mileage - personal vs business and travel log to/from, purchases, advertising, supplies, licenses and permits, telephone, utilities, home office, repairs and maintenance, insurance, interests expenses etc.)
Is your personal business a GST registrant? If so, there is also a filing requirement.
Rental Income and expenses (repairs and maintenance, property taxes, utilities, janitorial, common fees, mortgage interest etc.)
Did you move during the year where your new home is 40KM closer to your new place of employment than before. These moving expenses can be claimed
University/tuition tax slips (T2202A)
Property taxes/rental expenses paid for your principal residence
Child care costs/nanny costs paid in the year. If your children attended private school, there is a child care expense portion in the tuition fees. Did your lower income spouse enroll in school during the year?
Child support and/or spousal support payments/received
Summer camps and other camps paid in the year for children
Medical receipts or a print off from your insurance provider of medical expenses paid out of pocket
Donation tax receipts
Private health Insurance premiums paid
Professional/Union dues
Any significant changes to you and your family for 2024 that I should be aware of and may be utilized in filing for your taxes? Like a newborn, tying the knots, purchase a new home, or sold a old home!
Other related issues for 2024 that I should be aware of and may be used for taxes
For more information on how M.Y. Accounting Services can help you or your business, feel free to contact me at marioyu2@gmail.com or 416-566-8806.
