Understanding Tax Changes for Charitable Donations and Home Purchases

Tax preparation is an important part of financial planning and keeping up with the latest updates can help you make the most of your benefits. With recent changes already in effect for 2025, it’s crucial to understand how they could impact your finances. For Niagara residents, staying informed is key to making well-informed decisions. In this blog, we’ll cover three major updates for 2025: the extension for charitable donations, changes to the Home Buyers’ Plan (HBP), and the First Home Savings Account (FHSA). These updates have significant impacts on taxpayers, so it’s important to know how to take advantage of them.

Charitable Donation Extension for 2024

In a move to support Canada’s charities, the federal government has extended the deadline for charitable donations for the 2024 tax year. This decision, led by the Honourable Dominic LeBlanc and the Honourable Élisabeth Brière, allows Canadians to make eligible donations up until February 28, 2025, and still claim them on their 2024 tax return. Charitable donations are a valuable way for taxpayers to reduce their taxable income. Not only do they have support important causes, but they also provide donors with a donation tax credit that can significantly lower the amount of tax owed. Many Canadians are used to making contributions at the end of the year, especially around the holidays. This extension gives taxpayers more time to plan their donations, so they can take advantage of the tax benefits without the pressure of rushing before the usual year-end deadlines.

Why the Extension Matters

The extension of the donation deadline for 2024 is mainly in response to the Canada Post labour disruption, which caused a major mail stoppage for four weeks. This delay impacted some charities’ ability to process donations during the busy holiday season when many Canadians typically make their year-end contributions. By extending the deadline, the government is giving both donors and charities more time to get back on track. This ensures that the vital services charities provide to Canadian communities aren’t impacted by postal delays. Many Canadian charities depend on the generosity of donors during the holiday season to support their work in the upcoming year. These organizations tackle important issues like poverty, hunger, mental health, and homelessness. The extension helps ensure that donations are processed in time for tax deductions, and that charities can continue to serve their communities without interruption. While this extension is a one-time measure for the 2024 tax year, there has been some speculation about whether it will become a regular practice in the future. For now, the extension is only for 2024, and it’s unclear if similar extensions will be offered in years to come.

What Does This Mean for You?

If you’re planning to file your tax return in Niagara, now is a great time to make your charitable donations before the new deadline of February 28, 2025. Working with a local accounting firm in St. Catharines can help ensure your donations are properly documented and applied to your tax return for maximum benefit. The charitable donation tax credit is a valuable way to reduce your taxable income, and this extension gives you more time to take advantage of it. For those who regularly give to charity, this extension makes it easier to plan and organize your donations. If you’re unsure about the best way to maximize your donation tax credit, contact DDL & Co., a public accounting office in St. Catharines who can guide you through strategies to optimize your tax savings while supporting the causes that are important to you.

Updates to the Home Buyers’ Plan (HBP)

The Home Buyers’ Plan (HBP) allows Canadians to withdraw funds from their Registered Retirement Savings Plan (RRSP) to buy or build their first home, or to help a specified disabled person do the same. Before the 2024 changes, the HBP allowed Canadians to withdraw up to $35,000 from their RRSPs. However, this amount has been increased to $60,000 for individuals. This change is especially important for first-time homebuyers trying to enter the housing market. With housing prices rising across Canada, particularly in areas like Niagara, many first-time buyers may find it harder to save enough for a down payment. The increased withdrawal limit provides more flexibility and could make homeownership more accessible.

How the Home Buyers’ Plan Works

1. Eligible Accounts: To use the Home Buyers’ Plan (HBP), the funds must be withdrawn from an RRSP. The program doesn’t allow withdrawals from other types of savings accounts. If you’re not sure whether your RRSP qualifies, your accountant can help clarify this for you.
2. Maximum Withdrawal: As of 2024, the maximum allowable withdrawal has increased from $35,000 to $60,000 for individuals, and $120,000 for a couple (if both partners are eligible and withdraw from their own RRSPs). This increase will help homebuyers with larger down payments and closing costs.
3. Repayment Period: Repayments begin in the second year after you make the withdrawal. You must repay the amount over a 15-year period. Each year, you’ll need to pay back a portion of the withdrawal, and if you don’t make the required payment, the missed amount will be added to your taxable income.
4. Missed Contributions: If you miss a repayment in any year, the unpaid amount will be treated as part of your taxable income for that year. This means you’ll be taxed on the missed repayment, which could increase your tax burden.

Why This Matters

The increase in the HBP withdrawal limit is excellent news for first-time homebuyers who want to use their RRSP savings to buy a home. However, it’s important to keep track of your repayment obligations to avoid unexpected tax penalties. Working with a professional accounting firm in St. Catharines can help you stay on top of your HBP withdrawals and repayments, ensuring you follow the repayment schedule. If you’re planning to buy a home soon, it’s a good idea to start contributing to your RRSP now to get the most out of the Home Buyers’ Plan. A local public accountant can also help you understand how your HBP withdrawal fits into your overall tax plan and financial goals.

Exploring the First Home Savings Account (FHSA)

Along with the Home Buyers’ Plan, a new savings tool called the First Home Savings Account (FHSA) has been introduced to help first-time homebuyers save for a home with tax benefits. The FHSA allows individuals to contribute up to $8,000 each year, with a lifetime maximum of $40,000. Unlike the HBP, which lets you withdraw funds from your RRSP, the FHSA combines the benefits of both the RRSP and the Tax-Free Savings Account (TFSA).

How the FHSA Works

1. Tax Benefits: Like an RRSP, contributions to the FHSA are tax-deductible, which means they lower your taxable income for the year you make the contribution. However, unlike an RRSP, withdrawals from the FHSA are tax-free if they are used to buy a qualifying first home.
   
   
2. Contribution Limits: You can contribute up to $8,000 each year to your FHSA, with a lifetime limit of $40,000. If you don’t reach the annual limit, you can carry over the unused contribution room, giving you more flexibility in how you save.
   
   
3. Differences from the RRSP: Both the RRSP and RHSA offer tax-deductible contributions, but the big difference is how withdrawals are taxed. With an RRSP, withdrawals are taxed as income. However, withdrawals from the FHSA for a qualifying first home purchase are completely tax-free, which makes the FHSA a great choice for first-time homebuyers.

Why the FHSA Matters

The FHSA is a great tool for anyone saving for their first home. It allows your savings to grow tax-free, and the tax deductions on contributions can reduce your tax burden before you buy your home. Unlike the Home Buyers’ Plan, which requires you to repay the money you withdraw, the FHSA lets you keep the money you take out for your home purchase without any repayment. However, like any financial tool, the FHSA has its own rules. Understanding the contribution limits and tax benefits is key to getting the most out of it. If you’re in Niagara, working with a local accountant at DDL & Co. can help you take full advantage of the FHSA while managing your other savings and investments.

Planning Ahead with Expert Support If you’re looking to maximize your donation tax credits, navigate changes to the Home Buyers’ Plan, or use the FHSA to save for your first home, professional guidance is essential. At DDL & Co., we specialize in tax preparation and financial planning. As public accountants in St. Catharines, we’re here to help you make the most of your financial opportunities. From planning for charitable donations and homeownership to securing future savings, our team of professional accountants is ready to support you every step of the way. Contact DDL & Co. today for personalized advice and assistance with your tax return in Niagara. Let us help you plan for a confident financial future.