CRA: This Tax Break Can Help You Save Serious Money in 2024

Use the savings from tax credits to gain exposure to quality index funds and stocks such as CrowdStrike.

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The basic personal amount, or BPA, is a non-refundable tax credit that can be claimed by Canadian residents filing their taxes. The Canada Revenue Agency (CRA) offers a full tax deduction on the BPA for individuals earning less than $40,000 annually.

The BPA was increased from $14,398 in 2022 to $15,000 in 2023. So, if you are filing taxes this year and earned less than $40,000 in 2023, you can reduce your tax bill by $2,250 (15% of $15,000).

Further, the BPA will be indexed for inflation going forward and has increased to $15,705 for the 2024 taxation year.

Use the BPA tax break and increase savings

Canadians should aim to reduce their tax bill and invest these savings into inflation-beating asset classes to benefit from compounded gains over time. For instance, in the last 20 years, the S&P 500 index has returned roughly 10% annually in dividend-adjusted gains to investors.

So, an investment of $500 each month in the S&P 500 would return over $103,000 in 10 years, $383,000 in 20 years, and more than $1.1 million in 30 years.

Investors should ideally allocate a majority of their equity investments towards low-cost index funds such as those tracking the S&P 500 index. Here, you gain access to the largest companies in the world, including Apple, Microsoft, Nvidia, Amazon, and Alphabet.

Investors should also note that around 90% of large-cap mutual funds have failed to beat their respective benchmarks, making index funds a much better investment option.

Invest in growth stocks such as CrowdStrike

Canadian investors can also consider investing a small portion of their savings in quality growth stocks such as CrowdStrike (NASDAQ:CRWD) to benefit from outsized gains in the upcoming decade. Valued at US$68 billion by market cap, CrowdStrike stock is trading near all-time highs after surging 185% in the last 12 months. Since its initial public offering in 2019, CRWD stock has returned close to 400%.

CrowdStrike is part of the cybersecurity sector, which is fairly recession-proof. The global shift towards digital transformation, coupled with an exponential rise in the number of connected devices and the work-from-home trend, has drastically increased the number of cybersecurity attacks.

CrowdStrike operates in the endpoint security segment. It offers a cloud-based artificial intelligence-powered Falcon platform to enterprises to protect them from attacks. Around 63% of CrowdStrike’s customers use at least five modules, while 42% use at least six modules. In the prior-year period, these numbers stood at 60% and 36%, respectively.

A strong customer retention rate and higher adoption rates allowed CrowdStrike to increase sales by 35% year over year to US$786 million in the fiscal third quarter (Q3) of 2024 (ended in October).

Due to its higher operating leverage, net income more than doubled to $199.2 million in this period. In the last three quarters, its free cash flow also rose to US$655 million, 40% higher than the year-ago period, indicating a margin of 30%.

CrowdStrike continues to invest heavily in research and development (R&D), which will enable the company to expand its portfolio of products and solutions. In Q3, R&D spending grew by 38% to US$410 million.

Priced at 76 times forward earnings, CRWD stock is expensive. But quality growth stocks command a lofty multiple due to a rapidly widening earnings base.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Alphabet, Amazon, Apple, CrowdStrike, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.

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