What�s New In Tax

by Brian Quinlan

Here is a summary of recent income tax—and some non-income tax—changes.

Individuals

Tax rates and tax brackets. There were no changes to federal personal tax rates in 2022. The 2022 tax brackets increased by 2.4% to account for inflation. The tax brackets are increased by 6.3% for 2023. The government announced it was committed to a new alternative minimum tax regime for high-income Canadians. Details to come as part of the 2023 budget.
Basic personal tax credit. The maximum threshold for the basic personal tax credit in 2022 is $14,398. This can be claimed when income is $155,625 or less. When income is above $221,708, the threshold drops to $12,719. Where income is between $155,625 and $221,708, the threshold amount will be in the range of $12,719 and $14,398. The maximum threshold is $15,000 for 2023.
COVID-19 Relief
Still working at home due to COVID-19? Under the simplified rule for claiming home office expenses, the tax deduction is $2/day up to the limit of $500 for 2022—the same as in 2021. Employees are to complete tax form T777S as part of their tax return.
Canada Emergency Business Account (CEBA). The CEBA is an interest-free loan of up to $60,000 from the federal government to assist with non-deferrable business expenses (e.g., payroll, rent, utilities, insurance, property tax). When the loan is repaid by December 31, 2023 (previously December 31, 2022) up to a maximum of $20,000 will be forgiven. The forgiven portion is taxable. Where the loan is not repaid by the end of 2023, it becomes a three-year term loan with interest at five per cent.

Corporations

Tax rates. With respect to a Canadian-controlled private corporation (CCPC), the federal corporate tax rates remain unchanged at nine per cent on the first $500,000 of business income earned, 15% on the excess, 38 1/3% on dividends and 38 2/3% on interest and taxable capital gains.
Accelerated capital cost allowance (CCA or tax depreciation). Tax changes were announced in 2022 to permit CCPCs to immediately expense (100% CCA) up to $1,500,000 of certain asset purchases.
Tax credits. Proposal has been announced for a clean technology investment tax credit (up to 30%) and a clean hydrogen investment tax credit (up to 40%). The credits are to be available from the day of the 2023 budget.
Offshore corporations. Tax changes were announced to remove a tax advantage of earning investment income (including capital gains) though a corporation that operates under a jurisdiction of a foreign country.
Share buybacks. In 2024, public companies are to face a two per cent tax on share buybacks.

Saving And Retirement

Tax-Free Savings Account (TFSA). The annual contribution limit for 2023 is $6,500, up from $6,000 in 2022. As of January 1, 2023, the cumulative TFSA contribution limit is $88,000 for an individual that was at least 18 when TFSAs were introduced in 2009.
Registered Retirement Savings Plan (RRSP). The maximum RRSP contribution limit is $29,210 for 2022 (achieved when 2021 earned income was at least $162,278) and $30,780 for 2023 (achieved when 2022 earned income is at least $171,000). Where an individual is a member of a Registered Pension Plan (RPP), the RRSP contribution limit is reduced by the prior year’s pension adjustment (PA). The deadline to contribute to an RRSP and claim a 2022 tax deduction is March 1, 2023.
Old Age Security (OAS). In July 2022, those aged 75 and over received a 10% increase in their OAS payments. The income threshold for OAS repayment (“clawback”) to begin is $81,761 for 2022. The repayment is 15 cents of OAS received for every $1 of income in excess of the threshold.

Housing

First Home Savings Account (FHSA). As of 2023, those over 18 and planning to purchase their first home can open an FHSA. The FHSA allows for annual tax-deductible contributions of $8,000 and a lifetime maximum contribution of $40,000. The income and growth of FHSA investments are not subject to tax, and withdrawals from the FHSA are not taxed if used to purchase a home. Tax-free transfers from an RRSP to an FHSA are permitted, but here, the individual would not be entitled to a tax deduction. The FHSA is separate from the RRSP Home Buyers’ Plan (HBP). The HBP and FHSA cannot be used together to purchase the same home.
First-Time Home Buyersí Tax Credit (HBTC). The maximum base for the HBTC calculation has increased to $10,000 (from $5,000) to result in a tax credit of up to $1,500 for home buyers.
Multigenerational Home Renovation Tax Credit. Renovations that create a secondary dwelling with a private entrance, kitchen and bathroom for a related senior or adult with disabilities may be eligible for this tax credit. This tax credit is calculated as 15% of eligible expenses up to $50,000 incurred after 2022. The maximum credit is $7,500.
Canada Housing Benefit. This is a program to assist lower-income renters. A one-time tax-free payment of $500 is to come to individuals with income below $20,000 and to families with income below $35,000. To qualify, the rent paid must be at least 30% of the income. Applications became available in December 2022.
Flipping. Flipping is the purchase of real estate with the intent of reselling at a profit after a short period of time. Beginning in 2023, profits from the sales of residential property held for less than 12 months will be taxed as business income and not as a capital gain. This means that 100% of the profit will be taxed—versus 50% being taxed if a capital gain—and the profit cannot be sheltered from tax by the principal residence exemption. There are exclusions to this rule where a sale is due to a life event (e.g., an expanding family, marriage breakdown, illness, disability, death and taking a new job).
Underused Housing Tax. As of January 1, 2022, there was a one per cent tax on the value of vacant or underused residential properties owned by any non-resident, non-Canadian. Each year, the owner is required to file a return for each residential property under this rule.
Foreign Home Buyer Ban. A two-year ban on non-Canadians purchasing Canadian residential real estate began at the beginning of 2023. There are some exemptions to the rules. The full details are still to be released.

Medical

Canada Dental Benefit. Beginning last October, dental expenses incurred will be reimbursed by the federal government up to $650 per year for a child under 12. The $650 is based on the family not having dental insurance and earning less than $70,000. Families with income between $70,000 and $90,000 are entitled to lower amounts. The program is to be expanded in 2023 for seniors and individuals with disabilities. In 2025, the plan is to include all families with income below $90,000.
Reproduction. Medical expenses eligible for a tax credit now include payments made for the health care of a surrogate and payments made to fertility clinics and donor banks for sperm and ova.

Other

Luxury tax. This new tax’s implementation was deferred from January 1, 2022, to September 1, 2022. The tax applies to cars over $100,000 and boats over $250,000. The tax is 20% of the price in excess of the threshold or 10% of the price, whichever is less.
Capital gains exemption. The exemption on the sale of shares of a qualified small business corporation increased to $971,190 for 2023. The exemption remains at $1,000,000 for sales of eligible farm and fishing properties.
Interest in government student loans. Interest is being permanently eliminated on the federal portion of Canada Student Loans and Canada Apprentice Loans.
GST/HST. Eligible individuals received a one-time additional GST credit in November 2022. This payment doubled the GST/HST credit entitlement amount for the six-month period beginning July 2022.
Canada Worker Benefit. It is planned this program will be converted to payments to eligible individuals rather than a tax credit claimed on a personal tax return.
Reporting by trusts. Beginning with the 2023 trust tax returns, certain trusts will be required to disclose information on the beneficiaries, trustees and settlors of the trust on the trust tax return. As a result of the enhanced reporting rules, some trusts will be required to file a tax return when there was no previous requirement to do so. The implementation of the new reporting rules has been deferred twice.
Charity disbursement quota. The minimum a charity must spend out of its capital is 3.5%. The quota increased to five per cent on January 1, 2023, on capital in excess of $1,000,000. The rate remains at 3.5% for the first $1,000,000 of capital.

Brian J. Quinlan, CPA, CA, CFP, TEP

Allay LLP (formerly Campbell Lawless LLP)

Chartered Professional Accountants

bjq@allayllp.ca