Canadian Tax Changes 2024 – Part Two


2024 is shaping up to be a big year in the world of Canadian tax, with a host of new and upcoming legislative and administrative measures. From the implementation of new trust reporting rules to the progression of Bill C-59 and updates to the alternative minimum tax regime, Canadians will need to keep a close eye on their tax situations as these changes come into effect.

To help you stay informed, Part Two of our Canadian Tax Changes series takes a look at the critical measures set to shape the tax landscape in 2024 and beyond. For crucial details regarding tax brackets, CPP enhancement, EI premiums, RRSP limits and more, be sure to check out Part One.

Trust Reporting

The Canada Revenue Agency (CRA) has introduced new trust reporting requirements which apply to most trusts that are resident or deemed resident in Canada. These requirements are effective for taxation years ending on or after December 31, 2023.

Trusts that are subject to the new reporting rules must now file a T3 Trust Income Tax and Information Return every year, regardless of whether they have any income or tax payable in Canada. They must also provide information about the identity and tax residency of the settlors, trustees, beneficiaries, and any other persons who can exert control over the trust. This information must be reported on Schedule 15 of the T3 return, which should be filed within 90 days of the trust’s year-end.

The new requirements apply to any ownership structure that involves holding assets in trust for the benefit of another person or legal entity, even if the word “trust” is not explicitly used. This broad definition captures structures that may not be intuitively thought of as trusts, including partnerships and joint financial accounts between parents and adult children.

Parents setting up a joint bank account with their son

There are some exceptions to the new reporting rules for certain types of trusts, such as qualified disability trusts, graduated rate estates and trusts that hold less than $50,000 in specified assets throughout the year. However, these exceptions are limited and should be carefully reviewed on a case-by-case basis.

The new trust reporting requirements are intended to enhance the transparency and integrity of the Canadian tax system and to facilitate the exchange of information with other jurisdictions under international tax treaties and agreements. Failure to comply with the new reporting rules may result in significant penalties for the trust and its trustees.

On December 1, 2023, the CRA announced a temporary relief for bare trusts, stating that late-filing penalties will be waived for bare trusts that file their T3 return and Schedule 15 for 2023 after the 90-day deadline.

The Alternative Minimum Tax

The Alternative Minimum Tax (AMT) is a parallel tax system that imposes a minimum level of tax on individuals who claim certain deductions, exemptions or credits that reduce their regular income tax to unreasonably low levels. 

The AMT system was introduced in 1986 to ensure that high-income individuals pay their fair share of tax. However, over time, the AMT has affected more taxpayers than originally intended, especially those with moderate incomes who have large capital gains or charitable donations.

Handing over large sacks of money depicting large charitable donations

To address this issue, the 2023 federal budget proposed significant changes to the AMT regime. Once enacted, these changes will be effective for taxation years beginning after 2023 and include:

  1. Aligning the basic AMT exemption with the start of the fourth federal tax bracket by increasing it from $40,000 to $173,205 for 2024, and indexing it to inflation thereafter

  2. Increasing the AMT rate from 15% to 20.5% of adjusted taxable income

  3. Broadening the AMT base and increasing the percentage of certain income items to be included in the AMT calculation, such as raising capital gains from 80% to 100%

  4. Placing a 50% limit on certain tax credits and deductions that can be used to reduce the AMT, including charitable contributions

These changes aim to better target the AMT to high-income individuals who use tax preferences to significantly reduce their regular income tax. The government estimates that the new rules will reduce the number of individuals subject to the AMT in 2024 from 69,000 to 26,000 and generate approximately $3 billion in revenue over the next five years.

Eliminating Short-Term Rental Deductions

As of January 1, 2024, if you operate a short-term rental property in a province or municipality that has prohibited or restricted this activity, you will no longer be able to claim any income tax deductions for expenses related to this property.

According to the government, almost 19,000 homes were being operated as short-term rentals in Montréal, Toronto and Vancouver in 2020 that could be used for permanent housing.

Model of house next to pile of coins and wooden blocks spelling rent depicting short term rental properties

This measure was announced in the Fall Economic Statement and aims to encourage owners to return these units to the long-term rental market, as they are seen as contributing to the housing affordability crisis in some cities.

This change does not affect short-term rental operators who comply with the local rules and regulations in their area. However, they should keep track of their expenses and income and report them accurately on their tax returns.

The Federal Carbon Tax

The carbon tax is a federal policy that applies a charge on fossil fuels in an attempt to reduce Canada’s carbon footprint and encourage the transition to cleaner energy sources.

On April 1, 2024, the carbon tax rate is set to increase from $65 to $80 per tonne of carbon dioxide equivalent in provinces where the federal backstop applies. This means that Canadians will pay more for gasoline, diesel, natural gas, propane, and other fuels that are subject to the carbon tax. However, the federal government returns 90% of the carbon tax revenues to Canadians through the Canada Carbon Rebate, which is a quarterly payment that varies by province and household size.

GST Rebate for Rental Properties

In order to encourage the building of more rental housing units, the federal government has announced a new Enhanced Rental Rebate. 

Put forth as part of Bill C-56, the new legislation proposes an increase to the existing residential rental property rebate from 36% to 100%, with no limits or phase-out thresholds. This will effectively eliminate GST payable on newly constructed rental properties such as apartment buildings, student housing and senior residences.

Forewoman and worker inspecting new build rental properties

The enhancement is a temporary measure as part of the government’s efforts to address the high cost of housing in Canada. It will apply to qualifying projects that begin construction after September 13, 2023, but before 2031, which are substantially completed before 2036.

Digital Services Tax

Proposed as part of Bill C-59, the Digital Services Tax (DST) is a 3% tax that applies to certain revenues earned by large domestic and foreign businesses from digital services that rely on the engagement, data and content contributions of Canadian users. 

Once enacted, the DST will affect businesses that provide digital services such as e-commerce, social media, online advertising, online intermediation, user data sales or licensing, and digital content streaming. It will only apply to businesses that meet two revenue thresholds: a global revenue threshold of €750 million or more, and a Canadian in-scope revenue threshold of $20 million or more. 

The DST will apply on a calendar year basis, starting from January 1, 2024, but it will also have retroactive application to taxation years beginning on or after January 1, 2022. It is intended as an interim measure until an acceptable multilateral approach to taxing the digital economy is implemented.

EOTs and Intergenerational Business Transfers

With a potential 3 out of 4 Canadian business owners looking to exit their companies within the next decade, the government has been taking steps to address an impending succession crisis. As such, Bill C-59 included new measures to better facilitate business transfers with the introduction of employee ownership trusts (EOTs) and amendments to the rules governing intergenerational business transfers (IBTs).

Father training son in the family business

Until recently, the tax rules for intergenerational business transfers made selling your company to an arms-length buyer more advantageous than selling to a family member. In 2021, a private members bill (Bill C-208) was introduced to help level the playing field so that business sales to family members received the same tax treatments as those to arm’s length buyers. The new set of rules drafted by the Ministry of Finance will replace those of Bill C-208 and provide a clearer framework for genuine intergenerational business transfers.

For owners with no clear avenue for passing their business on to the next generation, the introduction of EOTs here in Canada may provide an attractive alternative. EOTs allow owners to effectively sell their businesses to their employees, without the employees having to pay directly to acquire the shares.  

EOTs have already been successfully implemented in countries such as the U.S. and the U.K. Their introduction here in Canada is welcome news for business owners and employees alike, as they can provide a smooth transition of ownership that preserves the company’s culture and values while rewarding and motivating the staff.

Final Thoughts

As we navigate through the ever-evolving landscape of taxation in Canada, it’s imperative to stay informed about the legislative changes that could impact our financial decisions. The introduction of new trust reporting rules, amendments to the Alternative Minimum Tax (AMT), and the proposals of Bill C-59 are pivotal developments that necessitate a proactive approach to tax planning. 

With so many changes on the horizon, Canadians will need to keep a close eye on the developing situation and consult with industry experts to ensure compliance and optimize tax strategies. If you or your business needs help navigating these changes, with tailored advice for your specific situation, don’t hesitate to reach out to our industry-leading Taxation Team.

This article was written by the NVS Professional Corporation team, your knowledgeable Barrie and Markham accountants.