In this blog, we highlight key considerations for this year’s filing season in the following areas:
- What’s new for individuals
- What’s new for businesses
- What’s new for trusts
- What’s new for 2024
- Other key developments
To stay up to date with tax changes throughout the year, bookmark and check our Canadian tax news webpage regularly.
WHAT’S NEW FOR INDIVIDUALS
The following changes apply for the first time to 2023 T1 personal tax returns for individuals, which are generally due on April 30, 2024.
Advance Canada Workers Benefit payments: Taxpayers no longer have to apply for advance payments of the Canada Workers Benefit (CWB) when they file their tax returns. These payments are now issued automatically to those who were entitled to receive the benefit in the previous tax year. Form RC201, Canada Workers Benefit Advance Payments Application, is discontinued.
Deduction for tradesperson’s tools expenses: Starting in 2023, employees can deduct up to the $1,000 for tradesperson’s tools expenses (increased from $500).
First Home Savings Account (FHSA): The FHSA is a new registered account to help individuals save for their first home. Starting in 2023, contributions to an FHSA are deductible and the income earned in an FHSA is not taxable. Qualifying withdrawals from an FHSA to purchase a first home are also not taxable. See our previous tax blog for more information.
Multigenerational Home Renovation Tax Credit: This new refundable tax credit is available for up to $7,500 (15 per cent of $50,000) of the costs of a qualifying renovation to an eligible dwelling that is completed to allow a qualifying individual to live with a qualifying relation. You can claim the credit (see T1, Schedule 12) for qualifying expenditures made or incurred after December 31, 2022, for services performed or goods acquired after that date.
Residential property flipping rule: Starting on January 1, 2023, a new deeming rule applies to ensure profits from flipping residential real estate are always fully taxed. The rule deems profits from dispositions of residential property (including rental property) that was owned for less than 365 days to be taxable business income instead of capital gain, with exemptions for death, breakdown of a marriage or common-law partnership, eligible relocations and other life events. The flipping rules also apply to assignment sales.
Working from home deduction: The temporary flat rate method for claiming employees’ home office expenses only applied for 2020 to 2022 and is no longer available. For 2023 and future years, employees need to follow the detailed method to make these claims.
WHAT’S NEW FOR BUSINESSES
Immediate expensing of capital: This incentive was applicable to eligible property available for use before January 1, 2024. In the case of individuals and Canadian partnerships (all the members of which are individuals), this incentive remains in place for eligible property available for use before January 1, 2025.
Accelerated investment incentive: Eligible property for this incentive must be acquired after November 20, 2018, and be available for use before January 1, 2028. For eligible property that becomes available for use after 2023, a phase-out period applies reducing the overall capital cost allowance over 2024 to 2027.
Phase-out of zero-emission vehicles and automotive equipment: On March 2, 2020, the federal government proposed a temporarily enhanced Capital Cost Allowance (CCA) rate of 100 per cent for eligible zero-emission automotive equipment and vehicles. A phase-out period reducing the overall CCA rate from 100 per cent is in effect for eligible vehicles or equipment that become available for use after 2023.
Substantive Canadian Controlled Private Corporations (CCPC): Substantive CCPCs are private corporations resident in Canada that are ultimately controlled, in law or in fact, by Canadian-resident individuals. These private companies are set up to avoid CCPC status and its refundable tax regime. On April 7, 2022, the government announced plans to prevent this type of tax planning. The final legislation is included in Bill C-59 and will apply to tax years starting on or after April 7, 2022.
Excessive Interest and Financing Expense Limitation (EIFEL): The EIFEL rules are intended to restrict Canadian taxpayers’ interest deductions based on a percentage of their “tax‑EBITDA.” The rules are very detailed and complicated, with exceptions for specifically defined entities. The proposed legislation is included in Bill C-59 and would apply for tax years starting on or after October 1, 2023 (transitional rules also apply).
Clean economy Investment Tax Credits (ITC): The government continues to prioritize implementing new tax credits encouraging clean economy investments. In the 2023 Fall Economic Statement, the government announced effective dates for eligibility for the various ITCs as follows:
- Carbon Capture, Utilization, and Storage – January 1, 2022
- Clean Technology – March 28, 2023
- Clean Hydrogen – March 28, 2023
- Clean Technology Manufacturing – January 1, 2024
- Clean Electricity – available from the date of Budget 2024 for projects that did not begin construction before March 28, 2023
- Expanded Eligibility for the Clean Technology and Clean Electricity Investment Tax Credits to Support Using Waste Biomass to Generate Heat and Electricity – November 1, 2023
- Expanded Clean Electricity – available from the day of Budget 2024 for projects that did not begin construction before March 28, 2023.
- Labour Requirements – November 28, 2023
WHAT’S NEW FOR TRUSTS
Beneficial ownership reporting: All trusts with tax years ending after December 30, 2023, must annually file a T3 Income Tax and Information Return, including additional beneficial ownership information (unless exclusions apply). This includes bare trusts, which were previously not required to file. For the 2023 tax year, the late-filing penalty for bare trusts would be relieved, provided the return and beneficial ownership information are ultimately filed. Other penalties may apply if failure to file was made knowingly or due to gross negligence.
Charities and internal trusts: Until recently, it has been unclear how the expanded trust reporting rules applied to internal trusts of registered charities. Internal trusts are those created when a charity receives property as a gift that is subject to certain legally enforceable terms and conditions and holds that property as the trustee of the trust. The CRA has confirmed that the new rules generally will not apply where:
- the charity created the internal trust on receiving property as a gift that is subject to certain legally enforceable terms and conditions, and
- holds that property as the trustee of the trust.
OTHER KEY DEVELOPMENTS
Electronic payments: Newly enacted legislation requires taxpayers to remit tax payments over $10,000 electronically or pay a penalty of $100 per payment. The CRA stated to CPA Canada that it expects to allow a grace period before enforcing the rules. During this time, the CRA will continue educating taxpayers on electronic payment options and encouraging them to pay electronically.
Underused Housing Tax (UHT): In the 2023 Fall Economic Statement, changes were proposed to the UHT rules in line with CPA Canada’s recommendation to define “excluded owners” for UHT purposes to include “specified Canadian corporations,” partners of “specified Canadian partnerships,” and trustees of “specified Canadian trusts.” These excluded owners would no longer have UHT reporting obligations for 2023 and future years.
Prescribed rate: The CRA’s prescribed interest rates for overdue remittances, overpaid remittances and taxable benefits are increased for the first quarter of 2024 by one per cent over Q4 2023. Prescribed rates announced for 2023 and 2024 to date are as follows:
What’s new for 2024
Alternative Minimum Tax (AMT): Draft proposals released on August 4, 2023, would significantly alter the AMT rules for 2024 and future years. CPA Canada and other stakeholders have advocated for changes to the draft rules to address various policy concerns (e.g. in potentially discouraging charitable donations), so these issues may be addressed before the rules are finalized. Watch for updates on our Canadian Tax News page.
Mandatory disclosure and general anti-avoidance rules: Changes to the mandatory disclosure rules apply to reportable transactions occurring after June 21, 2023. Amendments to the general anti-avoidance rule (GAAR) apply to transactions occurring on or after January 1, 2024. These amendments broaden the scope of the rules, potentially leading to additional reporting by taxpayers and their advisors. We will be looking to the CRA to provide additional guidance in 2024 on the changes to the GAAR.
Intergenerational business transfers and employee ownership trusts: For intergenerational business transfers, amendments were introduced adding new conditions and correcting flaws in legislation stemming from a private member’s bill that had attempted to resolve the inequity between family and non-family business transfers. For transfers to employees, employee ownership trusts have been introduced to help facilitate employee buyouts. Both these tax measures apply to transactions on or after January 1, 2024. See our previous tax blog for details.
Short-term rentals: In its 2023 Fall Economic Statement, the federal government proposed to deny deductions for short-term rentals for taxpayers where there is non-compliance with provincial or municipal laws or regulations related to short-term rentals, starting on January 1, 2024.
WE’LL KEEP YOU POSTED
We have seen a lot of tax changes over the last few years and 2024 is looking to be another year of substantial change. Make sure to bookmark our Canadian tax news page and check it often to keep up to date on the various tax changes.
Article by CPA Canada
