2023 Individual Tax Season Filing Tips & Reminders
As we get into the 2023 tax filing season, we would like to provide you with some information on changes that have taken place since last year and remind you of some important filing requirements and documents that need to be obtained in order to properly file your 2023 personal income tax return in a timely manner.
Deadlines and filing
For 2023 T1 returns, the filing deadline is April 30, 2024. The filing deadline for self-employed individuals and their spouses or common-law partners is June 15, 2024. Income taxes for all individuals (including self-employed persons) are due on April 30, 2024 and your payment will be considered on time if it is received by the CRA or processed at a Canadian financial institution on or before that date.
What’s New for 2023
Underused Housing Tax (UHT)
The UHT imposes a national annual 1% tax on the value of Canadian residential real estate considered to be vacant or underused. The tax generally applies to foreign national owners of housing in Canada. However, this tax also affects some Canadian owners (such as certain partners, trustees, and corporations). Consequently, many individuals exempt from the tax liability are still required to file a UHT return.
The UHT went into effect on January 1, 2022, with filings and/or taxes first being due on April 30, 2023. Subsequently CRA announced that residential property owners that are affected by the Underused Housing Tax (UHT) have until April 30, 2024, to file their returns and pay the tax for the 2022 calendar year without being charged penalties or interest. 2023 calendar year filings and taxes are also due April 30, 2024. Significant penalties apply to late filed returns (a minimum of $5,000 for individuals and $10,000 for corporations) so it is very important to determine whether a filing obligation exists.
As indicated above, there are many situations in which UHT filings are required for Canadian owners even if no tax liability exists. For example, bare trust structures (such as a parent being on title of their child’s home for financing purposes only) would cause a UHT filing obligation. Many bare trust situations among family members would constitute specified Canadian trusts (as all beneficiaries were excluded owners or specified Canadian corporations), again meaning that no UHT would be payable, but returns would still be required.
The 2023 Fall Economic Statement (released on November 21, 2023) proposed to expand the definition of excluded owner by making specified Canadian corporations, partners of specified Canadian partnerships and trustees of specified Canadian trusts excluded owners for 2023 and later calendar years. As a result, they would have no filing obligations. As such, many of these unclear situations would not require 2023 and later filings, regardless of whether or not there was a partnership or trust. However, the expanded definition of excluded owner is only proposed to apply to the 2023 and later years. UHT returns are still required for properties held by a partner of a specified Canadian partnership, or a trustee of a specified Canadian trust for the 2022 year. As a result, taxpayers will still have to determine whether these relationships existed.
Expanded Trust Filings
Significantly more trusts (including estates and bare trust arrangements) will be required to file tax returns. New disclosures on the trust filings are also required. This expansion applies to taxation years that end after December 30, 2023. That is, trusts with a December 31, 2023 year-end (i.e. most trust) will be the first to be impacted by the broadened rules, representing a deferral from previous draft iterations of the rules. This topic will be/has been covered in a separate dedicated communication.
Deduction for tools (tradespersons and apprentice mechanics)
Starting in 2023, the maximum employment deduction for tradespersons’ eligible tools has increased from $500 to $1,000. As a result, the threshold for expenses eligible for the apprentice mechanics tools deduction has also changed.
Federal, provincial and territorial COVID-19 benefit repayments
Federal, provincial and territorial COVID-19 benefit repayments made during 2023 can be claimed as a deduction on your 2023 return.
First Home Savings Account (FHSA)
The FHSA was introduced to help first-time home buyers save up to $40,000 for a home purchase. Starting April 1, 2023, contributions to an FHSA are generally deductible (like an RRSP), though the carryover of unused annual contribution limit is limited to one year (unlike an RRSP). Income earned in an FHSA and qualifying withdrawals from an FHSA made to purchase a first home are non-taxable (like a TFSA).
Multigenerational Home Renovation Tax Credit
Effective January 1, 2023, a 15% tax credit may be eligible in respect of expenses of up to $50,000 related to building a secondary suite for a family member who is a senior or an adult with a disability.
Residential Property Flipping Rule
Effective January 1, 2023, subject to certain exceptions, the profit earned on a sale of a residence (including rental properties) within one year of its purchase may be subject to tax as income versus a capital gain and the principal residence exemption will not apply.
Working From Home Deduction
The expanded eligibility for employees claiming home office expenses in 2020 has NOT carried forward to 2023. Specifically, the temporary simplified method is no longer available.
Housing Related Tax Credits
- First-Time Home Buyers’ Tax Credit – The amount is doubled such that eligible home buyers can access tax relief of $1,500 in respect of a qualifying home purchased after December 31, 2021.
- Home Accessibility Tax Credit – The annual expense limit is doubled to $20,000 such that the maximum non-refundable tax credit is $3,000 for 2022 and subsequent years.
Immediate CCA Expensing of Capital Assets
For corporations, this incentive was applicable to eligible property available for use before January 1, 2024. In the case of individuals and Canadian partnerships (all the members of which are individuals), this incentive remains in place for eligible property available for use before January 1, 2025.
Accelerated investment incentive
Eligible property for this incentive must be acquired after November 20, 2018, and be available for use before January 1, 2028. For eligible property that becomes available for use after 2023, a phase-out period applies reducing the overall capital cost allowance over 2024 to 2027.
Canada Dental Benefit
The Canada dental benefit provides an up-front, tax-free payment to cover dental expenses for children under the age of 12 without dental coverage. The benefit is only available to families whose adjusted family net income is under $90,000. Applications for this benefit can be made online on CRA’s My Account.
Electronic remittances or payments above $10,000
As of January 1, 2024, remittances or payments to the Receiver General of Canada should be made as an electronic payment if the amount is more than $10,000. Payers may face a penalty unless they cannot reasonably remit or pay the amount electronically.
Reminders
Investment related information
If your tax material includes investment information, kindly provide all information that has been mailed to you with your slips as much of the supplementary information mailed to you is needed to accurately file your income tax returns.
Eligibility for tax credits and benefits
Remember that your eligibility for certain credits and benefits is dependent upon your tax return being filed every year. Therefore it is important to file your return on time even if you do not expect to owe tax.
Principal residence matters
Starting in 2016, individuals must report dispositions of their principal residence that occurred in the year. Taxpayers are required to report certain basic information about the sale of a principal residence in order to claim the full principal residence exemption. The information required includes, but is not limited to, the address of the property, the date it was acquired, and the amount of the proceeds of disposition.
A change in the use of your principal residence or of an income producing property to your principal residence may be considered a deemed disposal which requires reporting. If you own real property, the use of which changed during the year, please be sure to discuss it with us so that we may help you determine if reporting is required.
Travel expenses to obtain medical services
The rules related to transportation and travel expenses eligible for a medical tax credit are often misunderstood. As per Income Tax Folio S1-F1-C1, Medical Expense Tax Credit “an amount paid to a person engaged in the business of providing transportation services is an eligible medical expense to the extent that the payment relates to transporting a patient to and from a locality, under the following circumstances:
- The patient travels to a place that is at least 40 kilometres away from the locality where he or she dwells to receive medical services;
- Substantially equivalent medical services are unavailable within the patient’s locality;
- The patient takes a reasonably direct travel route having regards to the circumstances; and
- It is reasonable, in the circumstances, for the patient to travel to that place for the medical services.”
If there isn’t a person who is in the business of providing transportation services readily available, a claim is allowed for reasonable expenses for operating a vehicle for the purposes of travelling to obtain medical expenses as long as the criteria mentioned above are met.
If the patient must travel at least 80 kilometres away and the other criteria mentioned above are met, additional expenses (including meals, accommodation and parking) are also considered eligible medical expenditures.
Medical expenses are frequently reviewed by CRA, therefore it is important to have your supporting documentation in order prior to making your claim. The required documentation must include a letter from your local medical practitioner confirming that the medical services were not available locally and therefore the taxpayer had to travel to receive such services, as well as confirmation from the out-of-town service provider that you attended the appointments and the dates of such appointments. For your convenience we have drafted a generic letter which is available in our office for you to take to your medical practitioners for the required signatures. Please call us to enquire about obtaining a copy.
Impact of Inflation
Many tax rules and thresholds are tied to inflation. The rapid increase in inflation has led to additional risks, costs and benefits. In particular, the personal income tax and benefit amounts for 2023 increased by 6.3% from 2022 numbers. For example, the income level at which OAS repayments commence has increased to $86,912 in 2023 (from $81,761 in 2022), the capital gains exemption for the sale of certain small businesses has increased to $971,190 in 2023 (from $913,630 in 2022), and the annual TFSA contribution limit has increased to $6,500 in 2023 (from $6,000 in 2022). In addition, the interest rate charged on overdue taxes has continued to increase, with the rate for the first quarter of 2024 on underpaid taxes being 10%.
Other important information
Depending on your particular tax situation you may need to provide the following information:
- Capital gains schedules including purchase and sale dates for all securities sold during the year as well as sales and purchase agreements of any real property sold in the year.
- Details of cryptocurrency transactions for the year. Cryptocurrencies, such as Bitcoin, Ethereum, Litecoin, etc., are considered a commodity and are therefore subject to the rules contained in the Income Tax Act. Accordingly, you must report any gains or losses from buying and selling cryptocurrencies.
- For rental properties, please remember to include the number of days the property was rented as well as the number of days the property was used for personal use as these impact certain expense allocations.
- Details with respect to specified foreign property held during the year.
Future considerations
Electronic Filing, Payments and Communication with CRA
Several changes have been proposed that would significantly affect how practitioners and taxpayers communicate and transact with CRA, for example, relating to the delivery of notices of assessments, businesses corresponding with CRA, the payment of taxes and the filing of returns. The implementation dates vary based on the particular proposal.
Alternative Minimum Tax (AMT) Modifications (Proposed for 2024)
The existing AMT regime is proposed to be significantly changed effective January 1, 2024 to focus on high-income individuals. These proposed changes would also impact several trusts engaging in normal-course, non-tax-abusive transactions.
Intergenerational Business Transfers (Legislated with amendments proposed for 2024)
Amendments to the rules that facilitate the intergenerational transfer of qualified small business corporation shares (QSBC) and shares of the capital stock of a family farm or fishing corporation shares to a corporation owned by the vendor’s child/grandchild have been proposed to restrict these transactions to genuine intergenerational business transfers (IBTs). Specific eligibility requirements focused on transferring ownership, management and control of the business have been added. These amendments would be effective for share sales occurring on or after January 1, 2024.
General Anti-Avoidance Rule (GAAR) (Proposed for 2024)
The existing GAAR is proposed to be significantly modified to capture more transactions, with larger penalties and an extended reassessment period. These amendments are proposed to apply to transactions on or after January 1, 2024.
Short-term rentals
In its 2023 Fall Economic Statement, the federal government proposed to deny deductions for short-term rentals for taxpayers where there is non-compliance with provincial or municipal laws or regulations related to short-term rentals, starting on January 1, 2024.
Canada Reveue Agency website: http://www.cra-arc.gc.ca/menu-eng.html
CPA Canada website: https://www.cpacanada.ca/en/business-and-accounting-resources/taxation/blog/2024/january/whats-new-personal-tax
Video Tax News Inc, January 2023: 2022 Personal Tax Returns – Round-up, September 2023: 2023 Tax Update
