As we approach tax season, it's crucial to stay updated on the latest changes that will affect your tax filings for 2023 and beyond. In this article, we'll outline important updates in various areas to help you navigate this year's filing season with confidence. We'll cover key considerations for individuals, businesses, and trusts, as well as highlight upcoming changes for the year 2024.
What's New for Individuals:
Automatic Canada Workers Benefit (CWB) Payments: Taxpayers are no longer required to apply for advance payments of the Canada Workers Benefit (CWB) when filing their tax returns. Eligible individuals will now receive these payments automatically based on their entitlement from the previous tax year, eliminating the need for Form RC201, Canada Workers Benefit Advance Payments Application.
Increased Deduction for Tradesperson's Tools Expenses: Beginning in 2023, employees can now deduct up to $1,000 for tradesperson's tools expenses, doubling the previous deduction limit of $500.
First Home Savings Account (FHSA): The FHSA is a newly introduced registered account aimed at assisting individuals in saving for their first home. Contributions made to an FHSA are deductible, and the income earned within the account is not subject to taxation. Additionally, withdrawals from an FHSA to purchase a first home are also tax-free.
Multigenerational Home Renovation Tax Credit: A new refundable tax credit is available for qualifying renovations to an eligible dwelling, designed to accommodate a qualifying individual living with a qualifying relation. The credit, which can amount to $7,500 (15% of $50,000) of renovation costs, is claimable for expenditures made or incurred after December 31, 2022, for services performed or goods acquired after that date.
Residential Property Flipping Rule: Effective January 1, 2023, a new deeming rule ensures that profits from flipping residential real estate are fully taxed as business income, rather than capital gains if the property was owned for less than 365 days. Certain exemptions apply for life events such as death, divorce, eligible relocations, and others. This rule also applies to assignment sales.
Changes to Working from Home Deduction: The temporary flat rate method for claiming employees' home office expenses, applicable for tax years 2020 to 2022, is no longer available. Instead, employees must now utilize the detailed method to claim these expenses for tax years 2023 and beyond.
What's New for Businesses:
Immediate Expensing of Capital: Previously, eligible property available for use before January 1, 2024, could be immediately expensed. For individuals and Canadian partnerships (consisting solely of individuals), this incentive remains applicable to eligible property available for use before January 1, 2025.
Accelerated Investment Incentive: Eligible property acquired after November 20, 2018, and available for use before January 1, 2028, qualifies for this incentive. For eligible property available for use after 2023, a phase-out period will reduce the overall capital cost allowance from 2024 to 2027.
Phase-out of Zero-Emission Vehicles and Automotive Equipment: The federal government previously proposed a temporary enhanced Capital Cost Allowance (CCA) rate of 100% for eligible zero-emission automotive equipment and vehicles. A phase-out period now reduces the overall CCA rate from 100% for eligible vehicles or equipment available for use after 2023.
Substantive Canadian Controlled Private Corporations (CCPC): Legislation included in Bill C-59 targets substantive CCPCs, private corporations resident in Canada controlled by Canadian-resident individuals, set up to avoid CCPC status and its refundable tax regime. These measures apply to tax years starting on or after April 7, 2022.
Excessive Interest and Financing Expense Limitation (EIFEL): Detailed and complex EIFEL rules aim to restrict Canadian taxpayers' interest deductions based on a percentage of their "tax-EBITDA." The legislation included in Bill C-59 applies to tax years starting on or after October 1, 2023, with transitional rules in place.
Clean Economy Investment Tax Credits (ITCs): The government is prioritizing the implementation of new tax credits to encourage clean economy investments. Effective dates for eligibility for various ITCs are 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 Clean Technology and Clean Electricity ITCs to Support Using Waste Biomass for 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: Starting with tax years ending after December 30, 2023, all trusts are required to annually file a T3 Income Tax and Information Return, which includes additional beneficial ownership information, unless exclusions apply. This requirement now extends to bare trusts, which were previously exempt from filing. For the 2023 tax year, the late filing penalty for bare trusts will be waived, provided that the return and beneficial ownership information are eventually submitted. However, penalties may still apply in cases of deliberate non-compliance or gross negligence.
Charities and Internal Trusts: There has been uncertainty regarding how the expanded trust reporting rules apply to internal trusts of registered charities. Internal trusts are established when a charity receives property as a gift that is subject to specific legally enforceable terms and conditions and holds that property as the trustee of the trust. The Canada Revenue Agency (CRA) has clarified that the new rules generally do not apply in cases where:
The charity created the internal trust upon receiving property as a gift subject to specific legally enforceable terms and conditions, and
Holds that property as the trustee of the trust.
What's New for 2024:
Alternative Minimum Tax (AMT): Draft proposals released on August 4, 2023, propose significant alterations to the AMT rules for 2024 and beyond. Stakeholders, including CPA Canada, have raised concerns about these draft rules potentially impacting charitable donations. Updates on these issues may be expected as the rules undergo finalization.
Mandatory Disclosure and General Anti-Avoidance Rules: Changes to the mandatory disclosure rules affect reportable transactions occurring after June 21, 2023. Amendments to the General Anti-Avoidance Rule (GAAR) apply to transactions on or after January 1, 2024. These amendments broaden the rules' scope, potentially increasing reporting requirements for taxpayers and their advisors. Additional guidance from the CRA regarding the GAAR changes is anticipated in 2024.
Intergenerational Business Transfers and Employee Ownership Trusts: Amendments have been introduced for intergenerational business transfers, imposing new conditions and rectifying flaws in legislation resulting from a previous private member’s bill. These changes aim to address disparities between family and non-family business transfers. Additionally, employee ownership trusts have been established to facilitate employee buyouts. Both measures are effective for transactions occurring on or after January 1, 2024.
Short-term Rentals: As outlined in the 2023 Fall Economic Statement, the federal government proposed disallowing deductions for short-term rentals for taxpayers failing to comply with provincial or municipal laws or regulations regarding such rentals, starting January 1, 2024.
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