2023 Personal Income Tax Updates

The 2023 personal income tax filing deadline is April 30^th 2024. The filing deadline for self-employed individuals and their spouses (including HST returns) is June 17^th (as June 15^th is a Saturday). All outstanding income tax and HST payments are due on or before April 30^th.

A checklist to assist you in gathering and summarizing your 2023 tax information can be accessed here.

Please note that the late filing of your income tax return will result in a CRA penalty of 5%* of any balance owing, plus an additional 1% for every month your return is late, up to a total of 12 months. The late payment of any balance owing (or late installment payment) will incur daily compounded interest charges at a prescribed rate that is updated every three months. As of January 2024, this rate is 10%.

We strongly encourage you to file and pay your taxes on time.

*Note: If the CRA charged you a late-filing penalty for 2020, 2021 or 2022 and requested a formal demand for a return, your late-filing penalty for 2023 will be 10% of your balance owing. You will be charged an additional 2% for each full month that you file after the due date, to a maximum of 20 months.

There are several updates to keep in mind as you gather information for your 2023 personal income tax return:

Home Office Expenses
The temporary flat rate method of claiming home office expenses introduced during Covid (along with Form T2200S, Declaration of Conditions of Employment for Working at Home Due to COVID-19) will no longer apply for the 2023 tax year. Eligible employees wishing to claim home office expenses will be required to use the detailed method and obtain a completed Form T2200, Declaration of Conditions of Employment from their employer. The CRA has indicated that they will accept electronic signatures on Form 2200 if they are applied in accordance with specified guidance. Form T2200 has also been simplified for 2023 and does not need to filed with your return, although it must be kept in case the CRA requests to see it.

Residential Property Flipping Rule
Effective January 1, 2023, residential properties that are bought and sold within one year (subject to exceptions) will be denied capital gains treatment and the Principal Residence Exemption. Exceptions include life events such as the death of the individual or related party, an addition to the household, separation or divorce, a threat to personal safety, serious illness or disability, work relocation or involuntary termination of employment, insolvency, natural disaster, or expropriation of the home. Note: The 2022 Fall Economic Statement proposed that these rules be extended to apply to assignment sales and pre-construction purchases.

Multigenerational Home Renovation Tax Credit
Effective January 1, 2023, this credit provides a 15% tax refund on eligible expenses associated with the building of a secondary unit (on a property or within a dwelling) for a family member who is either a senior (65 years of age or older) or an adult eligible for the disability tax credit. Eligible expenses are capped at $50,000 (for a maximum credit of $7,500) for each completed qualifying renovation. The claim must be made in the tax year the renovation is completed, regardless of when the renovation is started. When two or more individuals share the costs for the same qualifying renovation, the credit may be split between them, as long as certain specified conditions are met.

First Home Savings Account
Effective April 1, 2023, prospective first-time home buyers can contribute up to $40,000 over their lifetime and $8,000 for any one year (including 2023) to a First Home Savings Account (“FHSA”). An income tax deduction can be claimed for contributions made in a particular taxation year, and the funds withdrawn tax free to put towards the purchase of a first home. Unused FHSA participation room can be carried forward at the end of the year, up to a maximum of $8,000, to use in the following year. For example, if you do not make any contributions to your FHSA account in years 2023 and 2024, your FHSA contribution room in 2025 will be $16,000 (i.e. $8,000 limit for 2025 plus unused contribution room of $8,000 from 2024).

Update to Underused Housing Tax (UHT)
The UHT is a tax on vacant or underused residential housing in Canada that came into effect January 1, 2022. For the 2022 and 2023 calendar years, residential property owners affected by the UHT will have until April 30, 2024 to file their returns and pay any amount owing before incurring any penalties or interest. Penalties and interest were previously waived until October 31, 2023. Additionally, certain specified Canadian trusts, specified Canadian partnerships and specified Canadian corporations are proposed to be excluded from the UHT filing requirements from taxation year 2023 onwards. Please note, the UHT is a separate and distinct tax from the City of Toronto’s Vacant Home Tax.

Automobile Income Tax Deduction Limits
The automobile allowance rates paid per kilometer by employers to employees who use their personal vehicle for work have increased as follows:

The ceiling for the capital cost allowance (“CCA”) income tax deduction for the following new and used vehicles purchased in the year have increased as follows (before tax):

Deductible leasing costs have increased from $900 per month (before tax) in 2022 to $950 in 2023. This is set to increase to $1,050 in 2024.

Personal tax rates
Here is an overview of the two highest combined marginal Federal & Ontario tax rates for 2023 and 2024:

Future Year Updates

CPP 2
A second CPP contribution rate (“CPP2”) and earnings ceiling came into effect as of January 1, 2024. Employees and employers will each make an additional CPP contribution of 4% on earnings between $68,500 (annual maximum pensionable earnings) and $73,200 (newly established additional maximum annual pensionable earnings). The maximum annual employee and employer contribution for CPP2 is estimated to be $188 (each) for 2024, and the maximum CPP2 contribution for self-employed individuals is estimated to be $376 for 2024.

New Alternate Minimum Tax
Alternate Minimum Tax (“AMT”) calculations are proposed to be significantly modified to target high-income taxpayers. Starting January 1, 2024, the AMT rate will be raised from 15% to 20.5%, and the basic exemption will increase from $40,000 to approximately $173,000. The taxable income base used to calculate AMT will also be broadened. Also, and most notably (in addition to other changes), the inclusion rate of capital gains for AMT calculations will be increased from 80% to 100%, while the inclusion rate for capital gains from donated publicly listed securities will be increased from 0% to 30%. Note: certain tax credits that could otherwise reduce the AMT payable have been limited.

Short-Term Rental Deductions
The government has proposed to deny income tax deductions for non-compliant short-term rentals. This measure would apply in provinces and municipalities that have prohibited short-term rentals, or when short-term rental operators do not comply with the applicable provincial or municipal licensing, permitting, or registration requirements. Note: if the measure becomes law, it would be effective January 1, 2024.

Previous Year Updates

Reporting the sale of a principal residence
Individuals who sell their principal residence must report the disposition on their personal tax return in the year of sale, and designate how many years the property was their principal residence, in order to claim the Principal Residence Exemption (“PRE”). The maximum penalty for failing to report the disposition of a principal residence is $8,000. Please note that unless an election is filed, the change in use of a principal residence to an income-producing rental property may trigger a deemed disposition. 

Foreign reporting
Canadian residents who hold specified foreign property with an aggregate cost amount over $100,000 at any time during the year continue to be required to file the information return T1135 Foreign Income Verification form with their personal income tax return. Specified foreign property is generally any investment outside of Canada (bank and brokerage accounts, foreign companies, non-resident trusts, non-personal use real estate, non-active business use real estate, debt, foreign insurance policies, precious metals, crypto, etc.) or foreign investments held in Canada (i.e. foreign equities held in your Canadian brokerage account, crypto on a non-Canadian exchange).

Although Form T1135 is an information return, it is extremely important for it be completed accurately. There are severe penalties for failure to file this information return with the CRA.

Immediate Expensing for Self-Employed Individuals
If you carried on an unincorporated business and acquired capital property in 2023, you may be eligible to claim a 100% deduction of the expenditure this year. The immediate expensing rules allow eligible individuals and partnerships to take a full deduction of up to $1.5 million of capital property acquired and available for use on or after January 1, 2022 that is available for use before 2025. Note: certain capital cost allowance classes are not eligible for the enhanced deduction.

First Time Home Buyers’ Tax Credit
An eligible first-time home buyer can claim a $10,000 non-refundable income tax credit resulting in tax savings of up to $1,500.

Home Buyers’ Plan Withdrawal
The withdrawal limit for the Home Buyers’ Plan remains unchanged at $35,000 for 2023.

Climate Action Incentive (CAI)
The CAI is a tax-free payment that will continue to be paid out quarterly to eligible taxpayers.

Home Accessibility Tax Credit (“HATC”)
If you’re 65 or older and eligible for the disability tax credit, you can claim up to $20,000 of your expenses related to remodeling your home for safer access, resulting in tax savings of up to $3,000.

Ontario Childcare Access and Relief from Expenses (“CARE”) Tax Credit
The Ontario CARE Tax Credit continues to be a refundable tax credit available to Ontario taxpayers. Families that qualify for the full 75% credit could receive up to $6,000 per child under the age of seven, $3,750 per child between the ages of seven and sixteen, and $8,250 per child with a severe disability.

Digital Subscription Tax Credit
This continues to be a non-refundable tax credit for amounts paid by individuals to a qualified Canadian journalism organization for qualifying subscription expenses after 2019 and before 2025. The maximum credit is 15% of the qualifying subscription expenses in the year, up to $500.

Canada Training Credit (“CTC”)
The CTC is a refundable tax credit available to eligible workers between the ages of 26 and 65 at the end of the tax year, who have paid eligible tuition amounts and fees to a Canadian educational institution in or after 2020. Eligible workers who meet certain conditions will accumulate $250 a year, up to a lifetime limit of $5,000 to be used in calculating their CTC.

Lifetime Capital Gains Exemption (“LCGE”)
Individuals who realize a gain on the disposition of Qualified Small Business Corporation (“QSBC”) shares, qualified farm property, and qualified fishing property may be able to offset part or all of the gain by claiming a capital gain exemption. The 2023 LCGE for dispositions of QSBC shares was $971,190, ($1,016,836 for 2024) and for qualified farm or fishing property, the 2023 LCGE was $1,000,000 ($1,016,836 for 2024).

Labour Mobility Deduction
This deduction allows eligible tradespeople to claim eligible temporary relocation expenses (such as transportation, meals, lodging) expenses, up to $4,000.

S+C Partners is committed to helping you.

Our dedicated team of tax professionals is here to assist you. Please contact us at 905-821-9215 or tax@scpllp.com if you have any questions regarding any of the tax updates.

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