5 Tax Planning Resolutions for 2024

With a new year fast approaching, you might already have some financial goals in mind for 2024. If income tax planning isn’t on that list, it should be, experts say.

Knowing about newer tax rules and benefits can help you customize a plan that will maximize your money in the year ahead.

1. Understand your tax rate

Each year, the federal government sets new tax brackets for personal income tax and certain benefit amounts that are indexed for inflation. For the 2024 tax year, Canadians will see an indexation increase of 4.7% to their personal income tax brackets.

This means individuals earning more than $55,867 in 2024 will pay an income tax rate of at least 20.5%, according to the Canadian Revenue Agency.

Your tax planning strategy will depend heavily on your projected “human capital potential” and specific financial goals, says Sam Lichtman, a certified financial planner (CFP) and founder of Millen Wealth Management in London, Ontario. He notes this is especially true for younger professionals whose earnings are much lower than those farther along in their careers, and who might want to buy a car or a home in the near future.

Lichtman says younger workers should consider, “‘If I have the ability to take a deduction off the top of my income [to put toward an RRSP] maybe it makes more sense to do that when my income is maximized instead of when I’m just at the beginning of my career and not making very much.’”

2. Contribute to your employer’s RRSP

The biggest investment experts say you can make in your future while optimizing your tax savings is contributing your pre-tax income into an RRSP account. For the 2023 tax year, workers can contribute up to $30,780 in tax-deferred income to an RRSP, according to the CRA. In 2024, the limit will increase to $31,560.

Invest in your long-term future by using an RRSP. You’re going to get the best bang for your buck, says Jordan Dawes, a CFP with the Watkins Group in Victoria, British Columbia. Dawes adds that investing in your company’s RRSP — especially if your employer offers contribution matching — helps you lower your taxable income while saving for retirement.

3. Take advantage of home buyer tax perks

Two initiatives with tax benefits for Canadian home buyers are the First Home Savings Account (FHSA) and the First-Time Home Buyers’ Tax Credit, sometimes called the Home Buyers’ Amount.

FHSAs allow prospective home buyers to contribute up to $8,000 in the year they open the account and up to $40,000 over the account’s lifetime — all while lowering their taxable income. The accounts can be opened at most types of financial institutions, including a bank, credit union or a trust or insurance company.

“Anyone who does not own a home and is looking to buy a home in the next decade and a half … that’s the first account that should be opened,” Dawes says of the FHSA.

The First-Time Home Buyers’ Tax Credit allows home buyers to claim up to $10,000 of the purchase price for a non-refundable tax credit of up to $1,500.

4. Check your eligibility for child care benefits

If you’re a parent (or plan to become one soon), there are several helpful tax benefits to incorporate into your annual financial plan. The Canada Child Benefit is the most notable perk which currently provides parents up to $7,437 per child under the age of six and up to $6,275 for children ages six through 17 in 2023.

There are additional federal child benefits you may be eligible for such as the child disability benefit. Some provinces and territories offer additional child benefits that are either paid separately or added to the federal CCB payment.

You can also save for your children’s education by putting money into a tax-free registered education savings plan (RESP), Dawes says. If your child meets certain criteria and has an RESP, they might be eligible for the Canada Learning Bond, which provides a maximum of $2,000 toward post-secondary education expenses, as well as a maximum amount of $7,200 through the Canada Education Savings Grant.

5. Maximize self-employment income and benefits

If you run your own business or are self-employed, tax time is ideal for making a plan of attack for the year ahead. Your plan should include a cash flow analysis, including how you’re paid from your business, says Ben Mayhew, a CFP with Aergo Financial Planning in Halifax, Nova Scotia.

If you take a salary from your own business, contributing to employment insurance (EI) allows you to recive up to 55% of your earnings (a maximum of $650 per week) if you need to take time away from work to care for a child or other relatives.

You’ll pay annual EI premiums based on your reported self-employed income for an entire calendar year, beginning with the year you apply for the coverage.

Taking a salary allows business owners to use EI to claim parental leave — a sizable benefit that many people aren’t aware of, Lichtman says. He adds that having the flexibility to structure your pay based on your family’s needs is a strategic way to maximize your earnings and tax savings.

The bottom line: It pays to plan ahead

This list of tax strategies isn’t exhaustive; but it’s a good place to start. Know that you might also qualify for additional tax credits and deductions from the government, as well as your province or territory. Consult with the CRA website or your tax professional to ensure you’re claiming everything you’re eligible for.