Tax savvy: Navigating 2024 filing changes

Tax filing season is upon us; the deadline for filing is Wednesday, April 30, 2025. For business owners and their spouses, the tax return due date is June 15, 2025, though that is extended to Monday, June 16 since the actual deadline falls on a weekend.

The inflation index factor for 2025 came in at 2.7%, down from 4.7% for the previous year. Below are the 2024 and 2025 federal income tax brackets. Note that this year’s federal budget could change things for 2025. 

Capital gains

2024 was a tumultuous year for capital gain changes. Federal Budget 2024 proposed significant changes to capital gains, namely bumping up the capital gain inclusion rate from 50% to 66.67% after June 24, 2024, for individuals earning more than $250,000 capital gains in the year (for 2024, the threshold only applies to gains realized after the effective date), and for trusts and corporations from the very first dollar. However, the Department of Finance announced the suspension of this measure on January 31, 2025, delaying its implementation to January 1, 2026. This means the capital gain inclusion rate will remain at 50% for the 2024 and 2025 tax years.

Given the late announcement of the deferral, tax slips for 2024 may still contain separate boxes reporting the capital gains associated with each period (before and after June 24, 2024), even though they would both be subject to 50% inclusion rate. For more information on capital gain changes and reporting, please refer to our Tax & Estate InfoPage, Tax Reporting Guide for 2024, and our Insights article The uncertain destiny of capital gains tax changes (updated).

Tax-free savings accounts (TFSAs)

The TFSA contribution limit remains at $7,000 for 2025. The total cumulative annual TFSA contribution room allocated since 2009 is $102,000. 

From 2022 to 2024, the limit had increased back-to-back for 2 consecutive years on account of inflation alone, from $6,000 to $7,000. Given the relatively lower inflation rate in 2024 (2.7%), the TFSA contribution limit remains the same in 2025. Our internal calculations indicate that it would require an annual inflation rate of approximately 3.13% in 2025 to increase the TFSA allotted amount to $7,500 for 2026.

Registered retirement savings plans (RRSPs)

The RRSP dollar limit is set at $32,490 for 2025. As a refresher, an individual’s 2025 RRSP contribution room is the lesser of 18% of their prior year’s earned income and the RRSP dollar limit for 2025 ($32,490) plus any carryforward unused contribution room plus/minus any pension adjustments (if applicable). The RRSP deduction room for 2025 can be found on the 2024 Notice of Assessment or online by logging into the “CRA My Account” portal.

Finally, the 2024 first 60-day RRSP contribution deadline was Monday, March 3, 2025. These are contributions that can be made in the first 60 days of the year that are eligible for deduction against income taxable in the previous taxation year.

Registered education savings plans (RESPs)

Effective March 28, 2023, increases to the educational assistance payment (EAP) limits for full-time and part-time students during the 13-week period are shown below:

The 2025 annual EAP threshold is $28,881. If the total amount of EAPs requested in the year exceeds this limit, the RESP promotor (e.g., a financial institution that administers the RESP) may ask for additional information to support the reasonableness of the amount requested. EAPs, as a refresher, are withdrawals consisting of government grants and investment growth from an RESP.

First home savings accounts (FHSAs)

Starting in 2023, reporting mechanisms have been incorporated into the income tax return for individuals to recognize deductions for eligible FHSA contributions made and to track any unused FHSA contributions that may be deducted in future years. The form used for these purposes is Schedule 15, FHSA Contributions, Transfers and Activities, which also tracks eligible transfers to and from the FHSA and qualifying withdrawals.

Home Buyers’ Plan (HBP) withdrawal limit increase

HBP withdrawals made after April 16, 2024 qualify for an increased limit of $60,000. The previous limit was $35,000. Additionally, individuals who make a first HBP withdrawal between January 1, 2022 and December 31, 2025 are eligible for temporary repayment relief, which defers the start of the 15-year repayment period by an additional three years (i.e., rather than the default repayment schedule, which begins in the 2^nd year following the year of the first HBP withdrawal, repayments will instead start in the 5^th year following the year of the first withdrawal).

Canada Pension Plan (CPP) enhancements

The 2018 Federal Budget enhancements to the CPP was implemented gradually over a seven-year period that began in 2019 and to be completed in 2025.

1^st additional contribution: The first phase of the enhancements increases the percentage of CPP premiums payable (from 4.95% to 5.95%) based on the Yearly Maximum Pensionable Earning Limit (YMPE), which is $71,300 for 2025. In 2025, each employee will be contributing at a rate of 5.95% with matching employer contributions for total premium contributions of 11.90% on actual pensionable earnings (with a basic exemption on the first $3,500 of earnings) up to the YMPE. Maximum annual employee and employer contributions will equal $4,034.10 each (for a total combined maximum contribution of $8,068.20), whereas the maximum annual self-employed contribution will equal $8,086.20 (self-employed individuals must pay for both the employee and employer portions).

2^nd additional contribution: The second phase of the enhancements requires additional CPP contributions (“2^nd additional contribution”) made based on earnings between the original YMPE and a new higher limit, called the Yearly Additional Maximum Pensionable Earnings (YAMPE). The YAMPE for 2025 is $81,200. The second enhancement began in 2024 and ends in 2025. This means an employee who earns above the YMPE ($71,300 in 2025) will be contributing an additional 4% (with 4% matching employer contributions) of their earnings above the YMPE, up to the YAMPE ($81,200). For example, if an employee earns $75,000 in 2025, their 2^nd additional contribution equals $148 (calculated as ($75,000 - $71,300) × 4%). If this employee earns above the YAMPE, say $85,000, then their 2^nd additional contribution will be maximized at $396 (calculated as ($81,200 - $71,300) ×4%). With the 4% matching employer contribution (also $396), the employee’s total combined 2^nd additional contribution equals $792. Self-employed individuals must contribute the entire 8% contribution up to the YAMPE (or up to $792).

Old Age Security

The OAS repayment threshold is set at $93,454 for 2025. For every dollar above this threshold, OAS benefits will be reduced by 15% until they are fully eliminated. Note that due to previous changes announced in 2022, OAS benefits for individuals 75 years of age and older is increased by 10%. 

Prescribed spousal loan rates

The prescribed rate dropped as of January 1, 2025, to 4% (from 5% for Q4 of 2024) and will continue to be the rate for Q2 2025, spanning from April to June 2025. The prescribed rates are indexed to the Government of Canada's three-month T-bill yield. The rate started increasing in Q1 2022, peaked at 6% in Q1 2024 after five increases, then started dropping in Q3 2024.

The prescribed rate impacts the ability to effectively income-split with a lower income-earning spouse or common-law partner. To recap, a spousal loan permits a higher income earning spouse to transfer wealth to the lower-income spouse for investment use. Investment income earned will not be subject to the spousal attribution rules provided the loan carries an annual interest rate at least equal to the prescribed rate of interest at the time the loan was made and that the interest is paid by January 30 of the following year. The interest income payments are included as income by the spouse who made the loan, and the payment of interest is deductible from income by the spouse who received the loan, provided the loan is put to an eligible use.

Below is a snapshot of the spousal-prescribed rate loan rates over the last few years.

Denial of expense deductions for short-term rentals

Effective January 1, 2024, income tax deductions for expenses incurred to earn certain short-term rental income, such as interest expenses, will be denied. The denial of deductions applies to “non-compliant short-term rentals”, referring to short-term rentals in a province or municipality that prohibits short-tern rental operations, or rentals that fail to comply with the provincial/municipal requirements for a rental operation licence or permit. The change hopes to convert short-term rental units into long-term rental units, thereby increasing the supply of units in a competitive and pricey housing market.

Alternative Minimum Tax (AMT)

Various changes to the AMT regime that were introduced by Federal Budget 2023 take effect for 2024 and later tax years.

The AMT has been in place since 1986 and was designed to prevent individuals from making disproportionate use of preferential tax treatments and to ensure a certain amount of tax remains payable despite targeted tax benefits being claimed.

AMT requires a separate tax calculation to be conducted along with an individual’s regular income tax calculations by taking into consideration certain tax-preferred treatments or deductions that an individual claimed in the tax year. In other words, the regular taxable income is recalculated based on a different set of assumptions to arrive at an adjusted taxable income for AMT purposes; this re-establishes the “AMT income base” for which the AMT tax can be calculated. This alternative calculation involves the add-back of specific targeted deductions to taxable income otherwise determined under the regular method and excludes certain tax credits otherwise available.

Under the previous AMT rules, an individual (other than a trust) was entitled to a basic exemption of $40,000 when determining the adjusted taxable income under the AMT calculation. Instead of the progressive tax rates used in regular tax calculations, a flat rate of 15% is used to calculate the minimum tax payable. If the calculated AMT is greater than the regular tax otherwise payable, the individual must pay the AMT. The excess of AMT over the regular tax otherwise payable may be carried forward for up to seven years and recovered against regular taxes, subject to certain limitations.

Budget 2023 proposed various changes to the AMT regime.

First, the income base on which AMT is calculated is broadened. As AMT intends to target high income earning individuals, the base exemption from which AMT applies is from the fourth income tax bracket. For 2024, that is $173,205, and for 2025 it is $177,882.

Second, there are limits to various tax preferences in the form of deductions, exemptions, and credits. For instance, the regular income tax inclusion rate for capital gains is 50%. Under the previous AMT regime, the inclusion rate was 80%, and with the new AMT regime, capital gains will be fully included as income at 100%, putting them on the same footing as interest income. The same will be true for a donation of publicly donated securities. Where securities are donated in kind to a registered charity, the inclusion rate for capital gains is reduced from a regular rate of 50% to 0%. Under the new AMT regime, the capital gains inclusion rate will increase to 30%.

Last, the AMT tax rate from which adjusted income will be taxed increases from 15% to 20.50%. With the new adjustments to the initial proposed AMT regime as announced in Budget 2023, the AMT regime targets higher net worth individuals, and it will require careful examination of various deductions and exemptions claimed in the year to determine if AMT is payable under the new regime.

Enhanced trust reporting rules

All trusts with a taxation year ending after December 30, 2023, must comply with the new enhanced trust reporting requirements starting in 2023. Certain trusts that were not previously required to file a trust income tax return will now be required to do so, including bare trusts (see note on bare trust below). Specifically, the new trust reporting rules will apply to express trusts, bare trusts, and, for civil law purposes, a trust that is other than a trust established by law or by judgement. Certain exemptions to the enhanced reporting requirements are permitted, provided certain conditions are met. In August 2024, the Department of Finance proposed various amendments to the enhanced trust reporting rules, essentially reducing the scope of filing requirements and the number of trusts captured under the rules. The amendments narrowed the definition of bare trusts, provided exceptions to filing requirements for small trusts, limited the scope of a “settlor”, among other things. Due to the prorogation of Parliament until March 24, 2025, these proposals are not yet passed into law.

The enhanced trust reporting rules require trusts to obtain beneficial ownership information on an annual basis to be reported on the new tax schedule, T3SCH15, Beneficial Ownership Information on Trust. The filing deadline for the 2024 taxation year is March 31, 2025.

Note on bare trusts: Given the lack of guidance and the unintended impact on Canadians, the CRA has exempted bare trusts from the filing requirements for the 2023 and 2024 taxation year, unless the CRA makes a direct request for such filing.

Multigenerational Home Renovation Tax Credit

For 2023 and later tax years, a new refundable tax credit known as the Multigenerational Home Renovation Tax Credit is available. The tax credit is in respect of work performed and paid for and/or goods acquired on or after January 1, 2023. Renovations and expenses up to $50,000 can be claimed, providing up to $7,500 in tax credits. Generally, a qualifying expenditure is a renovation or alteration of, or addition to, an eligible dwelling that is of an enduring nature and integral to the home and is undertaken to enable the individual to reside in the dwelling with a relative by establishing a secondary unit for occupancy.

Property flipping and deeming provisions

Property flipping is the act of buying real estate for the purpose of reselling it at a profit a short time later. Starting January 1, 2023, a real property held for less than 365 consecutive days is automatically deemed to be “flipped property”. As a result, any gains from the disposition of such property are considered business income and therefore fully included in income, as opposed to receiving the capital gains treatment. Certain exceptions are available. For properties not considered “flipped property”, the nature of the gain (whether it’s considered capital gains or business income) will be based on the facts of each case.

FATCA/CRS enhanced compliance regime

The last several years have seen some significant changes to the CRA guidance on the Foreign Account Tax Compliant Act (FATCA) and Common Reporting Standards (CRS). The increased compliance will likely manifest as more frequent correspondences across financial institutions with respect to the client’s tax residency status as it pertains to their non-registered investments. Reporting institutions will be looking for a status confirmation (i.e., either “non-reportable” or “reportable”) concerning all new non-registered accounts in the client’s name, including pre-existing accounts that have experienced a change in circumstances.

Further information on these changes can be obtained by contacting the Invesco Tax & Estate InfoService.