What’s New this Tax Season?

The Basics 

Federal Tax brackets have shifted:  

• $0 to $53,358 (15%)
• $53,359 to $106,716 (20.5%)
• $106,717 to $165,429 (26%)
• $165,430 to $235,674 (29%)
• $235,675 and over (33%)

Ontario Tax brackets have shifted:  

• $0 to $49,231 (5.05%)
• $49,232 to $98,463 (9.15%)
• $98,464 to $150,000 (11.16%)
• $150,001 to $220,000 (12.16%)
• $220,001 and over (13.16%)

TFSA contribution limits have increased from $6,500 for 2023 to $7,000 for 2024.

The RRSP contribution limit for 2023 is $31,560 or 18% of your earned income in the previous year, whichever is smaller.

For those receiving the OAS, the minimum recovery threshold increased to $86,912 in 2023. The OAS claw back is 15% on the portion of income that exceeds the minimum threshold.

Benefits and Credits 

Disability Tax Credit 

Historically this has been a lengthy process, however in 2023 it went digital. In CRA’s My Account you can now complete Part A of Form T2201 and provide the reference number given to your qualified medical practitioner, who will complete Part B using the digital application.

Canada Dental Benefit    

This 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.

Multigenerational Home Renovation Tax Credit (MHRTC)

The MHRTC is a new refundable tax credit introduced in 2023.  This credit relates to certain renovation expenses (up to $50,000) incurred after December 31, 2022, to create a secondary self-contained unit within your home to house a related senior (65 years or older) or an adult who is eligible for the disability tax credit.  The refundable tax credit is 15% of the qualifying expenditures and must be claimed in the year that the renovation is completed.

Deductions 

Home work-space expenses

The temporary flat rate method of claiming working from home expenses ($2/day) is no longer available in 2023. Those employees who are still working from home will need to claim home office expenses using the detailed method and a T2200 from your employer will be required.

Eligibility criteria: (you must meet all criteria)

• Your employer required you to work from home (via written or verbal agreement).
• You paid expenses related to your work space that was not reimbursed.
• You spent more than 50% of your work time in your work space for a minimum of four consecutive weeks in the year OR you only use your work space to earn employment income, and it is used on a regular and ongoing basis for meeting clients, customers or other people while doing your work.
• The expenses you incurred are directly related to the work you do.
• You have a completed and signed copy of Form T2200, Declaration of Conditions of Employment, from your employer.

Immediate Expensing of Capital Assets  

Starting in 2022, business owners were able write-off 100% of certain capital assets in the year acquired and made available for use, allowing significant tax deferrals. Sole proprietors have until December 31st, 2024, to acquire eligible property that would qualify for immediate expensing.

First Time Home Saving Account (FHSA) 

The FHSA came into effect on April 1^st, 2023, and is available to those who are at least 18 years of age (and under 72). The FHSA allows an annual tax-deductible contribution limit of $8,000 (to a lifetime maximum limit of $40,000). Once you have opened the account, up to $8,000 of unused contribution room can be carried forward, and investment income earned in this account is not taxed.

• The lifetime of an FHSA starts when the account is opened and ends at the end of the year following the year in which the earliest of the following events occur:
• The 14^th anniversary of the date when the account was opened,
• When you turn 70 years old, and
• When you make a qualifying withdrawal
• Contributions must be made by December 31^st to claim a deduction for that year. However, contributions do not have to be deducted in the year made (they can be carried forward indefinitely).
• Funds can be transferred from an RRSP (tax-free) within the contribution limits, however there is no deduction for amounts transferred and it does not restore your RRSP contribution room.
• Funds withdrawn to purchase a qualifying home are not taxable, and remaining funds can be transferred into a RRSP or RRIF without reducing your RRSP room. Withdrawals for any other purpose are taxable.
• FHSA may be advantageous if you’re a qualified individual but have no plans to buy a home. If your RRSP room is already maximized, you can contribute to FHSA and get an additional deduction and eventually transfer the FHSA to an RRSP or RRIF without affecting your RRSP limit.

T4FHSA slips will be issued for the first time and will include information on items such as FHSA deductible contributions and withdrawals (both qualifying and taxable).

Real Estate Cautions 

Residential property flipping  

Effective January 1, 2023, all gains arising from the disposition of residential property (including rental property and assignment sales) owned for less than 365 days are deemed to be business income as opposed to a capital gain (and therefore, ineligible for the principal residence exemption). Some exemptions would apply when a home is disposed of due to certain life circumstances, such as the disposition being due to death, separation, birth, safety issue, illness/disability, employment change, insolvency or involuntary disposition.  If the gain is deemed business profit, additional expenses may be allowed (i.e. mortgage interest).

Short Term Rental Income 

Proposals have been released that would deny income tax deductions for expenses incurred after December 31, 2023, to earn short-term rental income when that income is earned in areas that have prohibited short-term rentals or when short-term rental operators are not compliant with the applicable provincial or municipal licensing, permitting or registration requirements.

Underused Housing Tax (UHT)

While this legislation is not new, those affected by the UHT have until April 30^th, 2024, to file their returns for the 2022 and 2023 years without being charged late filing penalties.

The UHT is an annual 1% tax intended to apply to the value of residential real estate owned by non-residents that is considered to be vacant or underused. However, many Canadian individuals on the title of a residential property on December 31 may also need to file UHT returns. This can occur if a person is holding the property in trust for another (such as when a person is on the title but is not the true owner) or if a person is holding the property as a partner for a partnership.

Trust Reporting

The new reporting rules, aimed at providing more transparency on beneficial ownership of assets, now require that more trusts (and estates) file a T3 return. These changes will catch out many individuals and businesses that may not be aware of their trust-like relationships (i.e. bare trust arrangements), exposing them to potential penalties and other consequences for non-compliance. The rules became effective in 2023, with a filing deadline of April 2, 2024.

Increased Interest Rates

The prescribed rate of interest for the first quarter of 2024 (January 1 – March 31, 2024) has increased to 10% for arrears and installment interest, making the non-deductible cost of interest expensive.

Tax credits that ended in 2022 

• Ontario Staycation Tax Credit
  
• Ontario Seniors’ Home Safety Tax Credit