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Jan 2, 2024

What's New In Tax

by Brian Quinlan

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

Individuals

Tax Brackets And Tax Rates 

  • The 2023 tax brackets increased by 6.3% to account for inflation. There are no changes to tax rates for 2023. For 2024, the alternative minimum tax (AMT) system has changed significantly. Part of the change is a new tax rate of 20.5% (up from 15%) and an increase in the AMT exemption to $173,000 (up from $40,000). 

Basic Personal Amount 

  • The maximum threshold for the basic personal amount in 2023 is $15,000. This can be claimed when income is $165,430 or less. When income is above $235,675, the threshold drops to $13,520. Where income is between $165,430 and $235,675, the threshold amount is in the range of $13,520 and $15,000.

Canadian Dental Care Plan 

  • As of 1 October 2022, dental expenses incurred for a child under 12 are reimbursed by the federal government up to $650 per year. 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. In 2023, the program was expanded to uninsured individuals under 18, individuals with disabilities and seniors. In 2025, the plan will include all uninsured individuals whose family income is below $90,000.

Housing

First Home Savings Account (FHSA) 

  • Individuals (18+) can now open an FHSA to help save for the purchase of a first home. The FHSA allows for an annual tax-deductible contribution of $8,000 and a lifetime maximum contribution of $40,000. The income and growth of the FHSA investments are not subject to tax, and withdrawals from the FHSA are tax-free when used to purchase a first home. Both the FHSA and the Registered Retirement Savings Plan (RRSP) Home Buyers’ Plan (HBP) can be used together. The HBP permits a taxpayer to borrow up to $35,000 from their RRSP to purchase a first home. The loan is interest-free and is to be paid back over 15 years.

Multigenerational Home Renovation Tax Credit 

  • Beginning in 2023, renovations that create a secondary dwelling (private entrance, kitchen, bathroom and sleeping area) for a related senior (65+) or adult with disabilities can be eligible for this tax credit. This tax credit is 15% of eligible expenses up to $50,000 incurred in the year. The maximum credit is $7,500. 

This tax credit is separate from the Home Accessibility Tax Credit (which began in 2016), which permits a maximum tax credit of $3,000 in respect of seniors incurring costs to make their dwelling easier to access, increase their mobility in the dwelling or to reduce the risk of harm while in or accessing the dwelling (e.g., wheelchair ramp, walk-in bathtub, wheel-in shower, grab bars).

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 are taxed as business income and not as a capital gain. This means 100% of the profit is taxed—versus 50% if taxed as 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, or taking a new job).

Underused Housing Tax (UHT) 

  • As of 1 January 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. UHT tax returns—tax form UHT 2900—for both 2022 and 2023 are due 30 April 2024. Often, a Canadian resident who owns a residential property through a trust or corporation has a UHT 2900 filing responsibility even when the tax works out to $nil. The penalty for non-compliance can be as high as $10,000. (The federal UHT is separate from “vacant home tax” declarations made to a municipality.)

Foreign Home Buyer Ban 

  • A two-year ban on non-Canadians purchasing Canadian residential real estate began on 1 January 2023. There are some exemptions to the ban.

Savings And Retirement

Tax-Free Savings Account 

  • The Tax-Free Savings Account (TFSA) contribution limit for 2024 is $7,000, up from $6,500 in 2023. As of 1 January 2024, the cumulative TFSA contribution limit is $95,000 for an individual who was 18+ when TFSAs began in 2009.

Registered Retirement Savings Plan 

  • The maximum RRSP contribution limit is $30,780 for 2023 (achieved when 2022 earned income was at least $171,000) and $31,560 for 2024 (achieved if 2023 earned income is at least $175,334). Where an individual is a member of a registered pension plan, the RRSP contribution limit is reduced by their prior year’s pension adjustment. The deadline to contribute to an RRSP and claim a 2023 tax deduction is 29 February 2024.

Old Age Security (OAS) 

  • The income threshold for OAS repayment (“clawback”) began at $86,912 in 2023. The repayment is 15% of OAS received in excess of the threshold.

Canada Pension Plan (CPP) 

  • Enhancements to the plan began in 2019. The second phase of the enhancement begins in 2024. CPP contributions will continue to increase each year.

Businesses

  • Employee ownership trusts (EOTs) / business succession Beginning in 2024, current owners of a Canadian-controlled private corporation can sell a controlling interest to a trust where the employees are the trust beneficiaries. The trust funds the purchase with dividends or loans from the corporation. Annual profits of the corporation are paid to the trust as dividends. The employees receive taxable distributions from the trust.

The sale price for the current owners is set at the market value. This will trigger a capital gain and a personal tax liability for the current owners. The tax liability can be reduced when the selling owners can make use of the capital gains exemption. (The exemption amount in 2023 was $971,190.) It is also possible to spread the tax liability over ten years. In addition, the November 2023 federal economic statement noted the government is planning a capital gain exemption of up to $10,000,000 when a sale is made to an EOT. This will be subject to conditions, full details still to come.

Canada Emergency Business Account 

  • The CEBA was an interest-free loan of up to $60,000 from the federal government to assist with business expenses during COVID. When the loan is repaid by 18 January 2024, up to a maximum of $20,000 is forgiven. (The forgiven portion is taxable.) Where the loan is not repaid by 18 January 2024, it becomes a five per cent interest-bearing loan due 31 December 2026.

Other

Tax Reporting By Trusts 

  • Beginning with 31 December 2023 trust tax returns, trusts are required to disclose details of their beneficiaries, trustees and settlors 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.

Share Buybacks 

  • In 2024, public companies face a two per cent tax on share buybacks.

Charity Disbursement Quota 

  • Prior to 2023, the minimum a charity must spend out of its capital was 3.5%. The quota increased to five per cent on 1 January 2023, on capital in excess of $1,000,000. The rate remains at 3.5% for the first $1,000,000 of the charity’s capital.

 

Brian J. Quinlan, CPA, CA, CFP, TEP, Allay LLP, Chartered Professional Accountants, email: bjq@allayllp.ca