On the dissolution of Parliament for the 2025 Federal Election, this section of the budget essentially “died on the table” as it was never passed into legislation.  Prime Minister Carney subsequently stated that the Liberal Party would not reintroduce this proposed change.

In Canada, capital gains tax applies when you sell an asset or investment for more than you originally paid for it. Here’s a breakdown:

• Taxable Amount: Only 50% of your capital gains are taxable. For example, if you earn $10,000 in capital gains, you’ll only pay tax on $5,000.
• Tax Rate: The taxable portion is added to your income and taxed at your marginal tax rate, which depends on your total income and province of residence.
• Exemptions: Some assets, like your principal residence, are exempt from capital gains tax. Additionally, capital losses can be used to offset capital gains, reducing your taxable amount.

In Canada, the Lifetime Capital Gains Exemption (LCGE) allows eligible individuals to exclude a portion of their capital gains from taxable income when disposing of qualified property. For 2024, the LCGE limits are as follows:

• Period 1 (January 1 to June 24, 2024): The LCGE is set at $1,016,836, meaning half of this amount ($508,418) is the cumulative capital gains deduction limit for this period.
• Period 2 (June 25 to December 31, 2024): The LCGE increases to $1,250,000, with half of this amount ($625,000) being the deduction limit.

This exemption applies to qualified small business corporation shares (QSBCS) and qualified farm or fishing property (QFFP). For these types of property, only half of the capital gain is included in taxable income, aligning with the current capital gains inclusion rate of 50%.

Let me know if you’d like further clarification or details!

What’s Next?  Federal Election 2025

Election Proposals as of March 31, 2025

Liberal Party: Proposes reducing the lowest income tax bracket rate from 15% to 14%, benefiting middle- and low-income Canadians. They’ve pledged to retain the lifetime capital gains exemption for small business shares and farming/fishing equipment of $1.25 million. On investments, they aim to expand access to tax-free savings accounts (TFSAs) by increasing the annual contribution limit to $8,000.

Conservative Party: Plans to cut the lowest income tax bracket rate to 12.75% from 15%, phased over two years. On capital gains, they propose a tax deferral for reinvested gains, encouraging domestic investment. For TFSAs, they promise a top-up allowing Canadians to contribute an additional $5,000 annually, provided the funds are invested in Canadian companies.

New Democratic Party (NDP): Suggests raising the Basic Personal Amount (BPA) to $19,500 from the 2025 amount of $16,129, meaning Canadians earning below this threshold wouldn’t pay federal income tax. They haven’t announced specific changes to capital gains taxes or TFSAs.

Green Party: Proposes an even higher Basic Personal Amount (BPA) threshold of $40,000, aiming to exempt more low-income earners from federal income tax. No specific capital gains or TFSA proposals have been highlighted.

As Canada approaches the 2025 Federal Election, the future of capital gains taxation remains uncertain. While the previously proposed increase to the inclusion rate has been shelved, it may resurface depending on the outcome of the election and the priorities of the incoming government. For now, the inclusion rate remains at 50%, and the Lifetime Capital Gains Exemption continues to provide significant tax relief for eligible business owners and farmers. Canadians with investment income or plans to dispose of significant assets should stay informed and consult their tax advisors to assess how evolving tax policies could impact their financial strategies moving forward.

The post Capital Gains Taxation – Election Promises first appeared on The Accounting Place.

Contributions to an RRSP are tax-deductible, reducing taxable income in the year of contribution, which can lead to immediate tax savings. The investment income within the RRSP grows tax-deferred until withdrawal, typically during retirement when the individual’s income—and potentially their tax rate—may be lower.

Contribution Limits and Deadlines for 2024

For the 2024 tax year, the RRSP contribution limit is 18% of earned income from the previous year, up to a maximum of $31,560. This limit is subject to adjustments based on the annual increase in the average wage. It’s important to note that any unused contribution room carries forward indefinitely, allowing individuals to make larger contributions in future years if they have not maximized their limits in previous years.

Contributions for the 2024 tax year can be made up until March 3, 2025. This deadline is crucial for individuals aiming to reduce their taxable income for the 2024 tax year. Contributions made after this date will apply to the 2025 tax year.

Tax Implications of RRSP Contributions

Contributing to an RRSP offers immediate tax benefits by reducing taxable income. For example, a contribution of $5,000 can lower taxable income by the same amount, potentially resulting in tax savings depending on the individual’s marginal tax rate. The tax-deferred growth within the RRSP means that investment income, such as interest, dividends, and capital gains, is not taxed until withdrawal. This allows the investments to compound more efficiently over time.

However, it’s important to recognize that RRSP withdrawals are considered taxable income in the year they are made. Therefore, when funds are withdrawn, they are added to the individual’s income and taxed at their marginal tax rate. This tax treatment underscores the importance of strategic planning regarding the timing and amount of RRSP withdrawals, especially during retirement when other sources of income may be present.

Considerations for 2024

As of January 2025, individuals should assess their financial situation to determine if making additional RRSP contributions is advantageous. Contributing before the March 3, 2025 deadline can provide immediate tax relief for the 2024 tax year. It’s also an opportune time to review unused contribution room, as any unused amounts can be carried forward indefinitely, offering flexibility for future contributions.

For those with a spouse or common-law partner, contributing to a spousal RRSP can be an effective income-splitting strategy. In this arrangement, the higher-income spouse contributes to an RRSP in the lower-income spouse’s name. The contributor receives the tax deduction, while withdrawals are taxed in the hands of the lower-income spouse, potentially resulting in tax savings for the household.

Additional Considerations

Age Limit

It’s essential to be mindful of the RRSP age limit. Contributions can be made up until December 31 of the year the individual turns 71. After this date, the RRSP must be converted into a Registered Retirement Income Fund (RRIF) or an annuity, or the funds must be withdrawn, which may have tax implications.

Programs for Specific Goals

Individuals should also be aware of the Home Buyers’ Plan (HBP) and the Lifelong Learning Plan (LLP), which allow for tax-free withdrawals from an RRSP for specific purposes, such as purchasing a first home or funding education. These programs have specific requirements and repayment schedules that must be adhered to.

Conclusion

RRSPs remain a vital tool for Canadians aiming to secure their financial future. Understanding the contribution limits, tax implications, and strategic planning opportunities associated with RRSPs is essential for effective retirement planning.

As of January 2025, individuals should consider making RRSP contributions before the March 3, 2025 deadline to maximize tax benefits for the 2024 tax year. Consulting with a financial advisor can provide personalized guidance tailored to individual financial circumstances.

The post RRSPs and Your 2024 Tax Return first appeared on The Accounting Place.

Charitable donations play a significant role in Canadian society, contributing to a wide range of causes that benefit communities across the country and around the world. In Canada, the government encourages charitable giving through various tax incentives, making it financially advantageous for individuals to support nonprofit organizations. Understanding how charitable donations, including donations of public shares, are treated under Canadian tax laws can help maximize the impact of ones giving while benefiting from potential tax deductions.

Tax Incentives for Charitable Giving

Under Canada’s Income Tax Act, individuals who donate to registered charities can receive tax credits. The Canadian tax system provides a non-refundable tax credit for individuals, which directly reduces the amount of taxes owed. The tax credit is structured progressively, meaning the more one donates, the greater the benefit.

For total donations under $200, the federal government offers a tax credit of 15% of the amount donated. For total donations over $200, the tax credit increases to 29%, or 33% for those in the highest tax bracket (incomes over $246,752 as of 2024). The provincial tax credits vary by province, adding another layer of benefit for donors, further enhancing the incentive to give.

The Importance of “Registered Charities”

To qualify for these tax incentives, the donation must be made to a registered charity. A registered charity in Canada is an organization that has been approved by the Canada Revenue Agency (CRA) and is eligible to issue official donation receipts for income tax purposes. These charities must operate within specific parameters, such as providing charitable services, conducting activities that align with the public good, and maintaining transparency with their finances.

The CRA maintains an online database where Canadians can verify whether an organization is registered. Donors should ensure that they are donating to a registered charity to receive the tax benefits associated with their contributions.

Donations of Publicly Traded Shares

In addition to cash donations, Canadians can donate publicly traded shares or other securities to registered charities. Donations of publicly traded shares come with unique tax advantages that can be significantly more beneficial than donating cash or other assets. When individuals donate securities such as stocks, bonds, or mutual funds that have appreciated in value, they are not required to pay tax on any capital gains. This is a key benefit of donating public shares, as it can help avoid the tax implications of selling those shares.

Typically, when someone sells an appreciated asset like stock, they must pay tax on the capital gain, which is the difference between the sale price and the original purchase price. However, if the securities are donated directly to a registered charity, the capital gains tax is entirely eliminated[1]. This means that the donor can deduct the full fair market value of the shares on the date of the donation, while also avoiding any tax liability on the appreciation.

Furthermore, like other charitable donations, gifts of public shares qualify for the charitable tax credit, providing donors with additional financial incentives. The combination of a tax credit for the donation and the avoidance of capital gains tax makes donating public shares a highly tax-efficient strategy for charitable giving.

Carrying Forward Donations

In certain cases, donations can be carried forward for up to five years if they exceed the annual limits. For example, if a donor gives a large sum to charity but cannot use the full tax credit for that year due to the donation limits, they can carry the excess forward to future years. This provision allows donors to maximize their tax benefits over time, making it easier to plan large charitable donations.

Conclusion

In summary, charitable donations are an essential part of Canadian society, and the tax incentives provided by the government make it easier for individuals and corporations to give. By contributing to registered charities, donors not only support important causes but also enjoy significant tax benefits. Donations of public shares, in particular, offer unique advantages by eliminating capital gains taxes and providing additional deductions. These incentives encourage ongoing generosity and can make charitable giving a key component of a financial plan.

[1] Potential Alternative Tax Implications – Contact The Accounting Place for details

The post Charitable Donations & Taxation first appeared on The Accounting Place.

Due to changes in the Income Tax Act effective for the 2024 tax year, this annual process may have different effects on the client’s 2024 tax return than other years.

Capital Gains and Losses – A Review

For tax purposes capital gains and losses receive preferential tax treatment.  In general, Capital Gains are taxed on 50% of the realized gain, while realized Capital Losses maybe deducted against realized Capital Gains.

The result is income tax is paid on one-half of the net realized gain at the client’s marginal tax rate.

What’s New!

Effective June 25, 2024 this changed.  The Canadian Government implemented a two-tiered methodology resulting in an increase to Capital Gains taxes exceeding $250,000 during the taxation year.  Net Capital Gains realized in a tax year from all sources will now be taxed as:

Assuming a net Capital Gain realized in September 2024 of $300,000, it would look like this:

What If …

Now, let’s assume that there is an investment within the portfolio that has lost a value of $75,000:

Let’s now assume that this is a joint account between spouses (and each spouse contributed equally to the portfolio.  What happens then?

As you can see, there are many different potential scenarios that can result in achieving the best overall result for taxpayers.  It will become important this year, and into the future, that all potential scenarios are considered. 

Remember the Potential Traps!

Superficial Losses – The superficial loss rules state that if you sell a capital property at a loss and reacquire the property within 31 days, the loss claimed is disallowed.

Attribution – The attributions rules within the Income Tax Act state that the taxpayer who funded the investment in the first place declares the income, capital loss /gain on the investment.

Carry-forward / Carry-back – Capital Losses can be carried forward for use in future years.  Capital losses incurred in the current tax year can be carried back and applied against capital gains incurred in the prior three years.

Real Estate – and other capital properties that may incur gains or losses are included into the Net Capital Gain/Loss amount for the purposes of the $250,000 inclusion factor.

1994 Capital Gains Election – was available allowing a taxpayer to realize a capital gain of up to $100,000 tax exempt.  This election, claimed using form T664 in 1994, allowed a tax-exempt increase in the cost base of a property (usually a cottage) thereby reducing the capital gain when sold.  Was the election made in 1994?

As in most cases, tax planning is required in order to ensure that the taxpayer is paying the
least amount of income tax allowable within the legislation.  As taxation continues to become increasingly complicated with many moving parts, seeking the services of The Accounting
Place and a Real Wealth Manager becomes imperative.

The post Harvesting Capital Gains & Losses first appeared on The Accounting Place.

TAX CREDITS & DEDUCTIONS

Tuition Fees to Canadian Educational Institutions becomes the primary expense of post-secondary education and unfortunately, not all the funds you’ll spend qualify for the Tuition Tax Credit.  The good news is that you don’t have to think about it, the post-secondary institution will look after it all for you.  There is no need to keep all those receipts and proof of payment for the many expenses you may occur. 

Canadian post-secondary institutions are required to issue to you each year Form T2202 which outlines the numbers of months you attended in the prior calendar year as well as the amounts you paid that qualify for the tuition tax credit.  This form can be downloaded from the institution from the same place you get your schedule and marks and will be available no later than February following the calendar year.

Parents – The Tuition Tax Credit belongs to the student – regardless of who’s paying the bills.  The student must use the tax credit to reduce their tax payable to zero first.  They may then transfer any unused tuition credit available to a supporting person, up to a maximum of $5,000.

Note that while slightly different, most post-secondary institutions in the USA also qualify for the Canadian Tuition Tax Credit.

Registered Education Savings Plan (RESP) Withdrawals now become available to draw on to assist with paying tuition fees and other post-secondary expenses.  The maximum withdrawal for a first-time RESP student in the first 13 weeks of enrollment is limited to $8,000 maximum.  After the 13 weeks, it’s up to you.

RESP Savings Plans consists of three different sections and it’s important to understand how to withdraw funds and which “bucket” to remove the funds from. 

• Contribution Bucket is the amount of the contributions made to the RESP.  This is the capital contributed and withdrawn without taxation having any affect on the amounts.
  
• Investment Income Bucket is the investment income earned on the contributions throughout the life of the plan.  This investment income becomes taxable in the hands of the student when withdrawn from the RESP.
  
• Grants Bucket is the funds contributed by Federal and/or Provincial governments towards the cost of post-secondary education.  In general, this portion of the funds is not taxable, but is required to be re-paid if it’s not used for post-secondary education.

Identifying which “bucket” you’re withdrawing funds from affects your taxes.  For example, if you have no income from other sources during the year, you will withdraw from the investment “bucket” simply because the first $15,000 of your income is tax-free each year.  If you had a summer job or other income during the year and earned $15,000, you will withdraw from the Grants or Contributions “Bucket” as neither of these attract income tax.

Please be sure to discuss which “bucket” to draw from with your Financial Advisor.

Other Tax Implications and Benefits

Scholarships, Bursaries and Fellowships are reported as income on the students tax return in the year received however, the Income Tax Act allows a tax exemption on the funds

• Up to $500 for students not eligible to claim the Education Amounts (Tuition Fees)
  
• Up to 100% of the related income for students eligible to claim the Education Amounts (Tuition Fees)

Moving Expenses are a tax deduction for a student to re-locate to a qualifying post-secondary educational institution under certain circumstances:

• The relocation is more than 40 kilometres
  
• Moving expenses are deductible against employment / self-employment income earned as well as the taxable portion of any research grants or other awards.

Other Reasons to File

Once a Canadian resident reaches the age of 18, various refundable tax credits become available to the student such as:

• GST / HST Credits
  
• Canada Carbon Rebate
  
• Provincial Sales Tax and/or Rent Grants
  • Note that “residency” at the post-secondary institution does not qualify as rent.

For further information regarding your personal situation, please contact your Financial Advisor.

The post Back to School first appeared on The Accounting Place.

Watch the full video on CHCH.

The Accounting Place and Croft Financial Group are working together to bring clients what they describe as the ‘future of financial services’.

By bringing in advisors from both groups, they plan to offer a fully integrated, family office experience, from financial, tax, insurance and estate planning through to the required investment accounts and portfolio management needed to put the plan into action.

For more information on this and how you might benefit, viewers can register on either website to be kept up to date with developments as they continue to roll-out ‘the future of financial services’.

The post The future of financial services first appeared on The Accounting Place.

Capital Gains receive preferential treatment under the Canadian Tax System.  This is primarily because investments carry a certain amount of risk but at the same time, stimulate economic growth within Canada.

A PRIMER

In general, a capital gain is the difference between an assets cost base and the proceeds of disposition when the asset is sold.  The difference represents the capital gain or loss and becomes the profit or income from the asset.  In most cases, a capital gain is not recognized as income until the asset is sold allowing for the deferral of tax until there is cash from the sale to pay the income taxes.

TERMINOLOGY

• Proceeds of Disposition is the amount received on the sale of the asset. 
  
• Outlays and Expenses from the disposition of the asset are the expenses incurred to sell the asset.  For example, a real estate transaction would include Realtor commissions and Lawyer fees.
  
• Cost Base is the amount original paid to acquire the asset.
  
• Adjusted Cost Base is the Cost Base plus expenses incurred to improve the asset.  Using the real estate example, this could include adding a garage or replacing the roof or furnace.

Capital Gains are taxed based on the “Inclusion Rate” in effect at the time of sale or realization of the disposition of the asset.  Since 1972 when Capital Gains taxes came into effect, the Inclusion Rate has varied:

HOW THIS WORKS

Let’s say you own a home that you rented to a third party.  You purchased it on July 1^st, 2000, for $125,000 plus legal fees of $1,500.  Since then, you have collected the rent but also spent $25,000 to improve the property.  Your Adjusted Cost Base is $151,500. 
($125k + 1.5k + $25k = $151,500)

You decide that it’s time to retire and sell the property for $500,000 and incur expenses of $15,000 real estate commissions and $3,000 in legal fees.  Your Proceeds of Disposition are $500,000 and your Outlays and Expenses are $18,000.

The Capital Gain becomes $366,500.  The date of closing becomes the sale date.  If the sale closed on June 24, 2024, your Capital Gain Inclusion would be $183,250 ($366,500 * 50% = $183,250) which would be taxed at your Marginal Tax Rate.

JUNE 25, 2024, CHANGE

Effective June 25, 2024, legislative changes have been put in place that changes the Inclusion Rate to 66.67% on Capital Gains more than $250,000 per calendar year.  Therefore, a sale on June 25, 2024, results in a double calculation.

The Taxable Amount of the Capital Gain in 2024 will be $202,705.50 ($125.k + $77.705k) and taxed at the Marginal Tax Rate of the individual.

Structuring Matters

Real Wealth Management involves the structuring of sources of income, types of income and in some cases when and how the income will be taxed.  Contact us to see how we can help you.

The post Capital Gains Changes for 2024 first appeared on The Accounting Place.

The Accounting Place announces today that it has been acquired by the Toronto-based investment management firm R N Croft Financial Services.

The Accounting Place has provided expertise in corporate and personal tax preparation and planning for more than 23 years. (Financial details of the acquisition were not disclosed.)

“We’ve been working with Croft clients and their portfolio managers with great success for years,” says Alan Rowell, Founder of The Accounting Place. “We’re excited to be officially part of the group, contributing our tax expertise to their holistic strategy, ensuring that clients have access to the best in tax planning and preparation as an integral part of their wealth management strategy.”

About RN Croft Financial Group

R N Croft Financial Group Inc. (CFG) is a licensed discretionary portfolio management and investment fund management company serving investors and investment professionals across Canada since 1993. CFG’s portfolio managers, financial planners, tax, and insurance specialists work together to help achieve the specific goals of their clients. Investors and advisor partners benefit from an integrated wealth management approach, which includes investment, tax, estate, and insurance planning as part of a complete wealth management process.

“Today’s announcement enables R N Croft Financial Group to adapt to a growing trend in the financial service industry, where convenience and comprehensive service are key differentiators,” states Jason Ayres, Chief Executive Officer of Croft Financial Group. “Clients are increasingly seeking a more personalized and integrated approach to their financial services and CFG is now able to deliver. By bringing these services under one roof, CFG can now provide a seamless experience that aligns investment decisions with tax, insurance, financial and estate planning offerings for our clients. “

“At the end of the day, what matters most to clients is how much of their wealth remains in their pocket,” concludes Rowell. “We will continue to serve all our clients with the same dedication and diligence while helping Croft enhance their integrated wealth management offering.”

Contact:

Jason Ayres, Chief Executive Officer, Croft Financial Group, 905-695-2320,  jayres@croftgroup.com;

Alan Rowell, 905-664-1010, ARowell@TheAccountingPlace.ca

The post The Accounting Place acquired by Toronto-based investment management firm first appeared on The Accounting Place.

RRSP contributions are tax-deductible, while the TFSA is not. This means the amount that is contributed to the RRSP is deducted from your total income for the year and reduces your current income taxes payable. Many individuals prefer the RRSP for this reason alone. If you currently find yourself in a high tax bracket, the RRSP is likely the most beneficial option for you.

As mentioned, contributions to a TFSA are not tax-deductible. However, while a deduction is not granted on your personal tax return, the income is not taxed when withdrawn from the account. If you expect to receive pension income in your retirement, the TFSA may be the best option.

Both the RRSP and the TFSA provide a tax-shelter for your investments. This means investment income (dividends, interest, capital gains etc.) that is earned inside the account is not taxed as it is earned. Rather, the income earned inside an RRSP is reported upon withdrawal (ideally in retirement when income levels are usually at their lowest).

As the name suggests, any investment income earned inside a TFSA is tax-free and is not reported on your personal tax return. Not when earned, or withdrawn from the account.

Always speak with your tax professional to find the best strategy that works for your tax situation.

The post What’s the difference between an RRSP and a TFSA? first appeared on The Accounting Place.

A cash gift, or a near-cash gift such as a gift certificate, is always considered a taxable benefit and is reported as income by the employee on their personal tax return through their T4 slip.

However, non-cash gifts are treated differently. The Canada Revenue Agency has an administrative policy that exempts non-cash gifts under certain circumstances. Also, whether the employer is dealing with the employee at arm’s-length or not is an important factor.

As long as the total value of all non-cash gifts during the year does not exceed $500 per employee, the gift(s) are non-taxable to an arm’s-length employee. The value of non-cash gift(s) that exceed $500 (per employee) is considered a taxable benefit by the Canada Revenue Agency and must be included on the employee’s T4 slip.

In order for non-cash gifts to fall under this policy, the gift must be for a special occasion – such as a religious holiday, birthday, wedding, or the birth of a child.

It’s important to keep in mind that all gifts that are given to non-arm’s-length employees are taxable, whether they are cash or non-cash gifts.

Always consult with your tax professional before calculating taxable benefits related to gifts.

The post Are there any tax implications to giving a gift to my employees? first appeared on The Accounting Place.