Year End Tax Planning for 2024 – INVESTORS AND AIRBNB HOSTS ESPECIALLY!

As the end of the year approaches there are a few planning steps you can take to reduce your personal tax bill this April and into the future.  2024 was a year where several significant tax changes occurred, including the increase in the capital gains inclusion rate and the limitation on expenses for short-term rental properties which don’t comply with local regulations.  These changes should be considered in addition to your regular year-end tax planning.

Here are a few tips you can use to reduce your 2024 taxes:

Incur Deductible Expenses in 2024

Consider making the following expenditures prior to December 31 so they can be deducted on your 2024 taxes rather than waiting another year for the deduction:

• Charitable donations;
• Medical expenses;
• Business expenses, including long term assets that will be available for use in 2024. Current rules allow for the “immediate expensing” of certain long-term business assets acquired prior to January 1, 2025 for individuals;
• Contributions to:
  • First Home Savings Account (FHSA), $8,000 annual limit and up to $16,000 contributed in any one year (subject to the applicable rules and lifetime $40,000 limit)
  • RRSPs up to your limit (deductible in 2024 if contributed by March 3, 2025)
• Renovations eligible for the Home Accessibility Tax Credit (HATC).  The tax credit is equal to 15% of renovation costs to permit seniors 65 years of age and up, or those eligible for the disability tax credit (DTC) to gain access to, or to be more mobile or functional within, their home, or reduce their risk of harm within their home or from entering their home. The amount of eligible expenses is $20,000, so this credit could be worth up to $3,000.

Capital Gains Minimization

Since 2001 only 1/2 of capital gains have been included in income, but as of June 24, 2024, that rate increased to 2/3 (assuming the legislation is eventually passed to enact it).  For individuals however, up to $250,000 of capital gains per year will still be included at the old 1/2 inclusion rate.   Planning for this likely new reality now includes maximizing the $250,000 annual limit.

Strategies to minimize capital gains tax include;

• Planning when to realize losses:  Normal planning would have been to realize capital losses before the end of the year to use them against capital gains incurred in the year, or any of the 3 prior years.  That may still be beneficial, however, if you expect to incur capital gains in excess of the $250,000 limit in 2025, it may be more beneficial to wait until 2025 to realize those capital losses.
  • Note that if a security is sold to realize a loss, that loss will be denied if the same or similar security is acquired within a 30-day period by you, a spouse or a company which either of you control.
• Realizing gains early:  If you expect your 2025 capital gains to exceed $250,000, it may be beneficial to realize capital gains in 2024 if you are not using all of your $250,000 limit for this year, to reduce or eliminate the capital gains subject to the 2/3 inclusion rate in the future.

Ensure Short-Term Rental Properties are Compliant

Starting in 2024, expenses incurred to earn income from short-term rental of residential property (services such as Airbnb), including interest expenses, are not deductible where this type of lease is prohibited in the region or where permit requirements have not been met.  Short-term rental means a period of less than 90 consecutive days.

As a transitional rule, expenses for 2024 may be claimed if the property is compliant by the end of the year.

If you have any questions about these matters, please contact your advisor at Wilkinson and Company LLP.

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.  No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents. 

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