As the 2023 tax season comes to a close, it is time to shift your focus to optimizing your wealth for 2024. Implementing tax reduction strategies benefits your future financial success and maximizes your net income. There are many ways to achieve financial wellness and it might take some time to find what’s right for you, but when it comes to the many approaches, they all have a common objective: securing your future.
When addressing your finances, it is vital to adopt a tailored approach that organizes your portfolio effectively. Prioritizing income tax strategies enables you to capitalize on the tax breaks and credits offered by the Canadian Revenue Agency (CRA). Stay informed about updates in tax regulations and newly added benefits as they are essential to achieve successful tax planning.
New Year, New Tax Changes
Like most years, there have been changes to federal funding outlets impacting the taxable incomes of specific tax brackets. This year, a 4.7% increase in personal tax brackets means individuals earning more than $55,867 will face an income tax rate of at least 20.5%.
Canadian Pension Plan (CPP)
The addition of another CPP tier and two maximum amounts means individuals with annual earnings between $68,500 and $73,200 will end up paying an additional 4% in contributions. This introduces a new tax obstacle for employers hiring workers that fall into the qualifying tax bracket; resulting in a 7.5% cost for the employer and a 7% contribution from the employee.
Trust Reporting
Bill C-32’s implementation focuses on increasing transparency around trusts with “bare trusts” being the main focus. Bare trusts refer to one individual acting as a beneficiary on a property or investment while another individual serves as a trustee and has no obligations. It is vital that trust holders are aware of their statuses when approaching 2024 as tax filing may be required.
What’s New?
Two new tax reduction options have been implemented this year, geared towards homeowners and potential buyers:
First Home Savings Account (FHSA): For prospective new home buyers, this newly introduced FHSA is a registered plan for saving, buying or building a qualifying home while assisting in managing your taxable income. Contributions to an FHSA reduce taxable incomes, and investment returns remain tax-free, with a maximum annual contribution of $8,000 and a lifetime limit of $40,000 in 2024.
Multi-Generational Home Renovation Tax Credit (MHRTC): In the 2022 federal budget, a new refundable MHRTC was introduced for qualifying applicants to create a secondary unit within a residence for occupancy by the qualifying individual or relative. The credit amounts to 15% of qualifying expenditures or $50,000, whichever is lower.
Dependable Tax Saving Strategies
Apply these strategies to your 2024 tax reduction plan to avoid tax burdens and maximize your wealth!
Registered Retirement Savings Plan (RRSP): RRSPs offer a means to lower taxable income, making them beneficial for those facing high tax burdens. While subject to contribution limits, RRSPs allow for tax-sheltered contributions and withdrawals, ultimately aiding in retirement planning.
Registered Education Savings Plan (RESP): Thinking about saving for your children, or grandchildren’s education? Consider an RESP, designed specifically to allow your contributions to grow tax-free with a maximum contribution of $50,000 per beneficiary for the lifetime of a plan.
Income Splitting: If you and your partner have differences in salaries, income splitting may be an efficient way to maximize your combined net income. Particularly beneficial for retired couples who are in different tax brackets and seeking to reduce their overall tax bill.
When preparing for tax season, it is important to set up a strategic plan to organize your assets and minimize tax breaks. At Rae Lipskie, you’ll receive tailored advice to optimize your financial wellness and maximize your investment returns. Speak to one of our financial advisors and begin building your plan of action, contact us today!
