While it seems to come around faster each year, we are officially into tax season. Canadians have until April 30, 2025 to file their 2024 tax returns. But the government has made a few changes this year—some relevant to cottagers. So, before you hit the submit button, here are a few tax considerations to keep in mind.
Shift in Tax Brackets
Inflation hit hard this past year. The prices of goods and services are on the rise. To help maintain Canadian buying power, the federal government adjusted tax brackets upwards, meaning individuals on the lower end of a tax bracket last year may not have to pay as much tax this year. The 2024 tax brackets are as follows:
- 15 per cent on income up to $55,867
- 20.5 per cent on income over $55,867 up to $111,733
- 26 per cent on income over $111,733 up to $173,205
- 29 per cent on income over $173,205 up to $246,752
- 33 per cent on income over $246, 752
Clarification on capital gains
You weren’t the only one confused by the messaging around capital gains in 2024. The federal government had proposed to increase the capital gains tax from 50 per cent to 66 per cent on any capital gains over $250,000 realized on or after June 25, 2024. This was set to have a major impact on cottagers who planned to sell or pass down their property. However, Prime Minister Justin Trudeau’s resignation announcement in January scuppered the proposal. Instead, the government has delayed the tax increase until January 1, 2026, keeping it at 50 per cent until then.
The only remaining confusion is that there will be two separate reporting periods on tax returns for capital gains this year, from January 1 to June 24, 2024, and June 25 to December 31, 2024. This is because the CRA had already printed and distributed tax slips according to the previous proposal. Capital gains in the two periods will be added together and taxed at 50 per cent.
Non-compliant short-term rentals
To free up housing, the federal government continues to take aim at short-term rentals. As of January 1, 2024, the government is denying income tax deductions to any non-compliant short-term rentals. The government defines a short-term rental as a residential property offered for rent for a period of less than 90 consecutive days. What makes it non-compliant is if it’s located in a province or municipality that does not permit short-term rentals to operate, or it does not comply with all applicable provincial or municipal registration, licensing, and permit requirements.
This means the owners of non-compliant short-term rentals can no longer claim expenses for things like insurance, repairs, property taxes, or utilities. These expenses can only be claimed for the period that a short-term rental was compliant. For instance, if an owner operates in a municipality that requires a short-term rental licence, but the owner didn’t receive a licence until June 1, 2024, then they can only claim expenses for the period of June 1 to December 31, 2024, not before then.
Update on the Underused Housing Tax
The Underused Housing Tax (UHT) created a bit of a stir last year for Canadian cottagers who owned their property through a trust. The federal government introduced the UHT on January 1, 2022 as a way to squeeze out foreign ownership of residential properties occupied for less than 180 days per year. The UHT is a one per cent tax levied annually on these types of properties.
When introduced, the tax was not intended to impact Canadian citizens or permanent residents, but due to some poor wording in the legislation, Canadians who owned a residential property, such as a cottage, through a trust were required to file a UHT return last year but not pay the tax. The government has adjusted the wording this year, meaning Canadians who own a residential property in Canada through a trust should no longer have to file a UHT return.
Penalties for not filing on time
The CRA is cracking down on unpaid taxes and late filings. While these penalties are the same as last year, they’re good to remember. If you file your taxes after April 30, the CRA will charge a five per cent penalty of your 2024 balance owning. For instance, if you owed $5,000, you would have to pay an additional $250. The CRA also charges an extra one per cent for each month after the deadline, up to a maximum of 12 months. If you miss a whole year, you could owe an extra 17 per cent on your taxes.
If this is your second offence, meaning the CRA charged you a late-filing penalty for 2021, 2022, or 2023, the agency ups your late-filing 2024 penalty to 10 per cent and an additional two per cent for each month after the deadline, up to a maximum of 20 months.
To avoid any outrageous sums, it might be worth keeping that April 30 deadline in mind.
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