What’s New for the 2023 Tax Season

The maximum Registered Retirement Savings Plan (RRSP) contribution limit for 2023 is $30,780 and $31,560 for 2024. Your RRSP contribution room for 2023 is generally calculated as 18 per cent of your 2022 earned income, less 2023 pension adjustments to a maximum of $30,780, plus any unused RRSP deduction room carried forward from prior years.

The Tax-Free Savings Account (TFSA) annual contribution limit for the 2023 tax year is $6,500 and, the annual TFSA contribution limit for 2024 will increase to $7,000. The cumulative contribution limit has increased to $88,000 for 2023 and $95,000 for 2024. Investment income earned in your TFSA is not taxable, but the contributions you make to your TFSA are not deductible. 

The Home Buyers’ Plan (HBP) limit is $35,000. Amounts withdrawn under the HBP must be repaid to an RRSP over a period not exceeding 15 years, starting in the second year following the year in which the withdrawal was made to prevent any income inclusion. The Home Buyer’s Plan only applies to first time home buyers. 

The Toronto Vacant Home Tax (VHT) is an annual tax on vacant homes in Toronto. The VHT requires residential property owners to submit a declaration of their property’s status, annually. Homeowners who choose to keep their properties vacant will be subject to this tax, which is one per cent of the Current Value Assessment (CVA) of the property. The VHT will be imposed on all Toronto residences that are declared, deemed or determined to be vacant for more than six months during the previous year.

Although all property owners are required to submit a declaration, the tax does not apply to properties that: 

1. Are the principal residence of the owner;
2. Are the principal residence of a permitted occupant or tenant; or
3. Qualify for an exemption.

The deadline to declare a property’s 2023 occupancy status is February 29, 2024. Speak to your Crowe Soberman advisor regarding the VHT filing requirement. 

The Underused Housing Tax (UHT) is an annual one per cent tax on the ownership of vacant or underused housing in Canada. The UHT generally applies to individuals who are not Canadian citizens or permanent residents of Canada. In some situations, however, the tax can also apply to Canadian owners who are not considered an excluded owner.  

Still, the tax will not apply if the property is occupied by the owner or rented to an individual at fair value in periods of at least one month that total 180 days or more in the calendar year. Additional exceptions can be discussed and tackled with Crowe Soberman’s tax team.  

The UHT tax return for a calendar year must be filed by April 30 of the following calendar year. The Canada Revenue Agency has extended the 2022 UHT filing deadline to April 30, 2024. As a result, both the 2022 and 2023 UHT returns must be filed by April 30, 2024. Only persons who meet the definition of an excluded owner are not subject to the UHT and have no obligations to file beginning in 2023.

All other types of owners must file a return, regardless of whether an exemption applies. These include Canadian private corporations, Canadian partnerships and Canadian trusts who own residential property in Canada, even if no tax is owing. However, the government has announced that some of these owners may no longer have a filing requirement for 2023 onwards.

There are significant penalties if you fail to file a UHT tax return on time. Affected owners who are individuals are subject to a minimum penalty of $5,000 and affected owners that are corporations are subject to a minimum penalty of $10,000. These penalties can apply even where no UHT is owing. However, the government has announced that penalties may be reduced to $1,000 for individuals and $2,000 for corporations.

You are able to claim a tax credit for eligible medical expenses paid for your dependent children if they were under 18 years of age at the end of the tax year. However, the total medical expenses for the family must exceed the lesser of $2,635 or three per cent of the parent’s net income for 2023. 
 
For 2023 and subsequent years, the list of eligible medical expenses eligible for the tax credit has been expanded to include surrogacy and other related expenses. Further, claims for surrogacy and donor related expenses have been expanded to include individuals or their spouse.

The Lifetime Capital Gains Exemption (LCGE) allows individuals to realize tax-free capital gains if the disposed-of property qualifies. For dispositions of qualified small business corporation shares, the LCGE has increased to $971,190 in 2023 and $1,016,836 in 2024. Beginning January 1, 2024, the government has proposed to amend the legislation to restrict access to the LCGE to genuine intergenerational share transfers, meaning shares that are disposed of to family members that meet certain specified conditions.

Qualified farm or fishing property LCGE is maintained at $1,000,000 for dispositions after April 20, 2015.

You may be able to deduct certain expenses including any applicable GST/HST you paid to earn employment income. You can do so only if your employment contract required you to pay the expenses and you did not receive an allowance for them, or the allowance you received is included in your income. Generally, Form T2200, Declaration of Conditions of Employment must be completed by your employer for you to be able to deduct employment expenses from your income.  

The simplified home office expense deduction that was available to many employees working from home in 2020, 2021 and 2022 due to the COVID-19 pandemic will no longer be available starting in the 2023 tax year. As such, unless your employer requires you to work from home, you will not be eligible to claim the simplified home office expense deduction. In addition, the temporary flat rate method, which was at $2 deduction per day, is no longer available. If you wish to claim the home office expense deduction for the 2023 tax year, you will be required to use the detailed method, but can only do so if you meet certain conditions. 

The Tax-Free First Home Savings Account (FHSA) is a new registered plan aimed at helping Canadians purchase their first home. The registered plan would enable eligible first-time home buyers to save $40,000 on a tax-free basis. An FHSA combines the features of an RRSP and a TFSA. Similar to an RRSP, contributions made to the FHSA will be deductible for tax purposes and, like a TFSA, withdrawals would be non-taxable if used to purchase a first home. Since this is a tax-free account, you will not pay any taxes on investment income earned within the account. Annual contributions are limited to $8,000 and lifetime contributions are limited to $40,000. You may carry forward up to $8,000 of your unused annual contribution to use at a later date. However, to accrue the annual contribution room for a year, the FHSA must be opened before the end of that year. In other words, the annual contribution room will only accrue once the account is open.

In the 2023 Federal Budget, the Government of Canada proposed various amendments to the AMT regime to address the concern that high-income Canadians continue to pay low income tax. While the proposed changes to the AMT regime are planned to take effect starting January 1, 2024, the Federal government has not included these changes to the AMT in its motion to implement 2023 Federal budget measures in the November 2023 fall economic statement. As a result, there is ongoing uncertainty about when the proposed changes will be implemented. 

The AMT was designed to ensure that the highest-income Canadians are still subject to a proportionate amount of tax where various deductions, credits and other tax planning strategies are used to lower their taxes. This calculation is similar to that of regular tax, but allows for fewer tax deductions, exemptions and credits to derive a base on which the AMT applies. High-income earners are required to pay the higher of the AMT and the regular tax calculated. Additional tax paid under the AMT is generally permitted to be carried forward for seven years and used as a credit against regular income tax paid to the extent regular tax exceeds AMT in those seven years.

We explore details surrounding the proposed AMT rate change, the basic AMT exemption and the AMT base in our 2023 Federal Budget highlights article.  

The government also proposes to reduce the rate at which non-refundable tax credits can be credited against the AMT. Currently, most non-refundable tax credits can be credited against the AMT at a rate of 100 per cent. The government is proposing to reduce the rate from 100 per cent to 50 per cent on these tax credits. An exception to this rule would apply for foreign tax credits.

Effective for tax years ending after December 30, 2023, new trust disclosure rules will apply, requiring additional information disclosures to be made with the filing of a T3 Trust Income Tax and Information Return (T3). A new schedule disclosing trustee, settler, and beneficial ownership information will be required to be filed along with a T3 return. Almost all trusts, including bare trusts (with some exceptions), must file a T3. The past exemption of “earning no income” will no longer apply to exempt a trust from filing. 

The penalties for non-compliance are the greater of $2,500 or five per cent of the highest total fair market value of all property held in the trust in the taxation year. Greater penalties apply for gross negligence.

The Government of Canada announced measures to deny income tax deductions for expenses incurred to earn short-term rental income in provinces and municipalities that have prohibited short-term rentals, and where short-term rental operators are not compliant with the applicable provincial or municipal licensing, permitting, or registration requirements. These measures will apply to expenses incurred on or after January 1, 2024.

Unpaid taxes and instalments will accrue interest at 10 per cent with interest compounding daily. Therefore, missing the payment deadline or making insufficient instalments could be costly.

Effective January 1, 2024, the government is introducing a second CPP earnings ceiling which applies to individuals who have an income above the first earnings ceiling of $68,500. These individuals will be required to contribute an additional percentage of the income they earn above the first ceiling, up to the second ceiling of $73,200. The rate for the first ceiling is 5.95 per cent (11.9 per cent for self-employed individuals), while the rate for the second ceiling is four per cent (eight per cent for self-employed individuals).