Introduction to Tax Season 2024

 To pull ahead of high inflation, interest rates and new taxes, taxpayers and their advisors must quickly sharpen tax and financial skills in the new year for the challenging times ahead, says Knowledge Bureau Founder and President Evelyn Jacks, best-selling tax financial author and award-winning educator.  The good news?  Most people can find new tax relief due to a host of changes, together with highly educated specialists who can help.

“Canadians continue to struggle through the most significant economic shock since 2019 together with continued levels of uncertainty related to housing and food insecurity,” says Mrs. Jacks. “This is where tax and financial advisors can really shine providing essential financial services that can lead directly to financial relief, particularly through the tax system.”   

Download our 2024 Tax Planning and Investment Milestones checklist!

Correct Tax Failing Errors and Omissions Now.  There are immediate ways to increase cash flow, including tax recovery initiatives.  By adjusting prior filed returns and filing missed returns to recover tax credits and deductions as well as tax refunds, many families can receive thousands of new dollars they didn’t know they had.  

Catch Up On Tax Balances ASAP.  For those that pay, the balances due at tax filing time have risen significantly over the years, says Mrs. Jacks, “Now, with a 10% prescribed interest rate on outstanding balances starting January 1, 2024 there are many compelling reasons to pay off tax debt as soon as possible and plan with more tax efficiency in mind.”

Work with a Pro.  Adapting to continued economic difficulty begins with finding the right professionals, with up-to-date credentials.  That’s challenging for most people, says Jacks, especially because it will cost some money for professional fees; but it can lead to the making of foundational investments that will secure a household’s future. “I like to think about the concept of finding an Advisor for Your Future - someone with deep and broad knowledge who can help assemble a team of financial specialists for you when you need them: when there is a disability or death in the family, for example, and much sooner, when family, investment, retirement, succession and estate planning needs arise.  These advisors can help you think about new short- and long-term goals to get your financial health back.” she says.

The goal is to make and stick to your plans, look for tax advantages and maximize tax efficient investments.  This will help most individuals and their families increase after-tax cash flow, manage debt and increasingly important:  manage audit surprises from the CRA. 

The 2024 Tax Filing and Investment Planning Milestones Checklist.   Jacks provides this checklist annually a new resource to use as a primer in conversations between advisors and clients.  “Make sure you are receiving all the government benefits you are entitled to by looking over the numerous social benefits being paid every month, or in some cases quarterly, to families and seniors:  Old Age Security, Canada Pension Plan, Guaranteed Income Supplement, Veterans Disability Benefits, Employment Insurance, the Canada Child Benefit, and quarterly, the Climate Action Incentive,  the GST/HST Credit as well as the Canada Workers Benefit, for example.” Many of the government benefits available are income tested and that means they can be clawed back as income rises. To preserve or even increase these benefits, it’s important to maximize your RRSP deduction, if you are eligible, and most importantly file a tax return to create RRSP room and receive the benefits as well. 

How Can Our Family Decrease Income Taxes? Astute advisors will discuss income splitting within the family for the best after-tax results; it’s a great way to increase cash flow – every two weeks –to pay family expenses, make investments and stay out of debt.  Learn more about new tax brackets income falls into to plan how the family unit as a whole can pay taxes at lower rates.  For example, 4 people making $15,000 each will bring home $60,000 tax free dollars, when it comes to federal taxation (there may be some provincial tax).  One person making $60,000 will pay taxes at rates shown below.  Aside from this, lower earners receive more in refundable tax credits. 

Can Inflation Actually Work for Us?  The answer is yes. Consider the “tax free zone” is now $15,000 - no federal taxes are payable when income falls below this.  And, due to high inflation rates, the other personal amounts and tax brackets were indexed in 2023 by 6.3% and will be indexed by 4.7% in 2024.  For the 2023 tax filing year, individual income levels can reach $53,359 and still be within the lowest federal tax bracket of 15%. The next bracket attracts a 20.5% rate up to $106,717.  For a couple that evenly splits income, that’s $213,434 for the household.  It’s important to consider these brackets when pension income splitting in particular.

How to keep income within a lower tax bracket?  Make an RRSP contribution, if eligible, by end of day February 29, 2024.

What Should We Know About Tax Changes for Real Estate?  Residential real estate transactions are subject to a number of new tax measures in 2023 including the new Tax-Free First Home Savings Account (FHSA), the refundable Multi-Generation Home Renovation Tax Credit and doubling of the non-refundable New Home Buyer and Home Accessibility Tax Credits.  But there are also new tax traps: residential home flipping rules which arise if you sell a principal residence within 365 days of purchase.  This will not only cancel the Principal Residence Exemption but require a 100% income inclusion for the profits, except in limited life-event driven instances.  These are new issues in the 2023 tax filing year. On the horizon for 2024 is a new tax restriction on short term rentals if owners fail to comply with municipal rules.

Can Investments by More Tax Savvy Now?  While these new measures are complex and require planning new investment opportunities – such as the new FHSA, the TFSA (new contribution level is $7000 for 2024) and RRSP contributions – all can increase tax free or tax deferred income and turbo-charge savings power.    Tax, legal and financial advisors who work together can helps households move ahead financially.