Personal Tax Information:
Top 10 Issues from 2023 tax update
Lifetime Capital Gains Exemption
In 2023, the lifetime capital gains exemption was increased to $971,190 for qualified small business shares and $1,000,000 for farm/fishing property.
Tax-Free Savings Account (TFSA):
A TFSA allows you to set money aside in eligible investments and watch those savings grow tax-free throughout your lifetime. Interest, dividends, and capital gains earned in a TFSA are tax-free for life. Your TFSA savings can be withdrawn from your account at any time, for any reason, and all withdrawals are tax free. As opposed to an RRSP, contributions made to a TFSA are not tax-deductible.
Your TFSA contribution room is the maximum amount that you can contribute to your TFSA. You will accumulate TFSA contribution room for each year that you are 18 or older and a resident of Canada, even if you do not file an Income Tax Return or open a TFSA.
For 2023 the annual maximum dollar amount that can be contributed to a tax-free savings account is $6,500. The total cumulative contribution room for a TFSA is $88,000 for those who have been 18 years or older and residents of Canada for all eligible years.
Canada Child Benefit (CCB):
The Canada child benefit (CCB) is administered by the Canada Revenue Agency (CRA). It is a tax-free monthly payment made to eligible families to help with the cost of raising children under 18 years of age. Depending on adjusted family net income, additional payments may be received for children under the age of 6, or those eligible for the disability tax credit.
House Sales
Starting with the 2016 tax filing, taxpayers are required to report basic information (date of acquisition, proceeds of disposition and description of the property) on their income tax return when they sell their principal residence. Prior to the change CRA did not require any reporting related to the sale of a principal residence if the property was your principal residence for every year you owned it.
Individuals who sell their principal residence will report the sale on the T1 Income Tax Return.
Do you use part of the home for business/rental?
Individuals might have to split the selling price and the adjusted cost base between the personal and business portions of their home.
Deemed Dispositions?
The change applies to deemed dispositions. For example, a deemed disposition will occur if there is a change in use of the property: A change in all or part of your home to a rental or business operation or vice versa.
Closer connections reporting form for Canadians that travel in the USA
You are considered a U.S. resident if you meet the substantial presence test for the year. You meet this test if you were physically present in the United States for at least:
• 31 days during the year and
• 183 days in total during the three prior years, counting all the days of physical presence in prior year, 1/3 the number of days of presence in the 2nd prior year and, 1/6 the number of days in the third prior year.
If this is the case you should be filing IRS Form 8840. The form, in essence, acknowledges that you met or exceeded the "substantial presence test" BUT are not going to be filing a U.S. income tax return since you maintain "a closer connection" to a foreign country, such as Canada, where you will be paying annual income tax.
Foreign Income Reporting Requirements - Form T1135
In light of some recent changes by the Canada Revenue Agency and further clarification on the foreign reporting requirements, it should be noted that a T1135 form is required for any individual, corporation or trust resident in Canada who holds foreign property with a combined total cost of more than $100,000 Canadian. Significant penalties may apply to any applicable party that fails to provide a T1135 form.
Adoption Expense Tax Credit:
The adoption expense tax credit was broadened to include eligible expenses incurred prior to the time a child is matched with adoptive parents, beginning when prospective parents register with a provincial ministry or adoption agency
Canada Pension Plan (CPP):
Workers aged 60-65 are now required to make CPP contributions even if they are already collecting CPP. These contributions will go towards the new Post-Retirement Benefit (PRB) which increases retirement income and rises with increases in the cost of living. The PRB will increase your monthly CPP pension each year, effective January 1st after the payments are made. Workers who are between the ages of 65-70 who are receiving CPP can elect to stop contributing by completing form CPT30. If no election is made, contributions are still required
Under the new CPP rules, the reduction for drawing CPP prior to age 65 is increased to 0.6% per month up to a maximum of 36%. Conversely, if payments are delayed until after age 65, payments will increase by 0.7% per month. If an individual begins receiving CPP at age 70 they will realize a total increase of 42%. Based on a 4% return, if a person expects to live to age 85 (average life expectancy) the optimal time to begin receiving CPP is at age 68.
Home Accessibility Tax Credit Changes
From 2022 on, the federal government increased the limit on amounts that can be claimed as tax credits on renovations made to homes to enhance accessibility for adults physically impaired, or at least age 65, from $10,000 to $20,000 (thereby increasing the maximum allowable deduction to $3,000 ($20,000 x 15%).
Underused Housing Tax
The federal Underused Housing Tax was made effective January 1, 2022, with the intent to address housing affordability for Canadian citizens and permanent residents. This tax amounts to 1% of the “taxable value” (greater of the assessed property value for property tax purposes or, the property’s most recent sale price on or before December 31).
All Canadian residential property owners will be required to file underused housing tax (UHT) information returns by April 30 of each calendar year, even if no tax is payable. Failure to file this return in a timely manner can result in the following penalties:
Individuals - the greater of $5,000 or 5% of the tax payable, plus 3% per complete month the return is late
Corporations - the greater of $10,000 or 5% of the tax payable, plus 3% per complete month the return is late
However, any excluded owner, as described by CRA on their website, will be exempt from this tax. The CRA website also sets out the various situations where UHT will, and will not, apply. Please feel free to contact our office if you would like assistance in clarifying your taxable situation.
Canada Dental Benefit
Starting December 1, 2022, the Canada Dental Benefit was made federally effective, with the stated aim of lowering dental care costs for lower-income families in Canada. Parents and guardians with children, whose families earn between $70,000 and $89,999 in adjusted family net income, will be eligible to receive tax-free payments of $650, $390, and $260, graduating. If your child’s dental costs are over $650 in a given period, you may qualify for an additional payment. Further information is available on the CRA website.
