Tax savvy: Navigating 2023 filing changes and gearing up for what’s coming in 2024

Tax filing season is upon us; the deadline for filing is Tuesday, April 30. For business owners and their spouses, the tax return due date is June 15, though that is extended to Monday, June 17 since the actual deadline falls on a weekend.

The 2024 annual inflation rate came in at 4.70%, down from 6.30% in 2023. Below are the 2024 federal income tax brackets. Note that this year’s federal budget could change things for 2024. 

Tax-free savings account (TFSA) limit (2024)

The TFSA contribution limit has increased to $7,000 for 2024, largely due to the adjustment based on the previous year’s inflation rate (4.70%). The total cumulative annual TFSA contribution room allocated since 2009 is $95,000. 

Remarkably, this is the first time that the limit has increased in back-to-back years on account of inflation alone. While it took four years for the annual inflation rate adjustment to increase the TFSA limit from $6,000 to $6,500, it took just one year to have the inflation rate increase it from $6,500 to $7,000. Our internal calculations indicate that it would require an annual inflation rate of approximately 5.70% in 2024 to increase the TFSA allotted amount to $7,500 for 2025.

First-time home savings accounts (FHSAs) (2024+)

New reporting mechanisms have been incorporated into the individual income tax return for 2023 to recognize deductions for eligible FHSA contributions made in 2023 and to track any unused FHSA contributions that may be deducted in future years. The new schedule used for these purposes is Schedule 15, FHSA Contributions, Transfers and Activities, which also tracks eligible transfers to and from the FHSA and qualifying withdrawals.

Registered retirement savings plans (RRSPs) (2024)

The RRSP dollar limit is set at $31,560 for 2024. As a refresher, an individual’s 2024 RRSP contribution room is the lesser of 18% of their prior year’s earned income and the RRSP dollar limit for 2024 ($31,560) plus any carryforward unused contribution room plus/minus any pension adjustments (if applicable). The RRSP deduction room for 2024 can be found on the 2023 Notice of Assessment or online by logging into the “CRA My Account” portal.

Finally, the 2023 first 60-day RRSP contribution deadline was Thursday, February 29, 2024 (on account of 2024 being a leap year). These are contributions that can be made in the first 60 days of the year that are eligible for deduction against income taxable in the previous taxation year. 

Registered education savings plans (RESPs) (2023+)

Though not new for 2024, effective March 28, 2023, increases to EAPs for full-time and part-time students during the 13-week period were made as follows:

Canada Pension Plan (CPP) enhancements (2024+)

The 2018 Federal Budget enhancements to the CPP will continue to be introduced gradually over a seven-year period that began in 2019 and will be completed in 2025. The first phase of the enhancements was an increase in CPP premiums payable.

In 2024, each employee will be contributing at a rate of 5.95% with matching employer contributions for total premium contributions of 11.90% on actual pensionable earnings (with a basic exemption on the first $3,500 of earnings) up to the Yearly Maximum Pensionable Earnings Limit (YMPE) for the year ($68,500 for 2024). Maximum annual employee and employer contributions will equal $3,867.50 each (for a total combined maximum contribution of $7,735), whereas the maximum annual self-employed contribution will equal $7,735.

The second phase of the enhancements began in 2024 and ends in 2025. There will be a new YMPE for high income earners that only affects those whose income reaches above the first YMPE ceiling of $68,500 (for 2024). The second earnings ceiling level, known as the yearly additional maximum pensionable earnings or YAMPE, spans from income between $68,500 and $73,200 in 2024 and will be subject to additional CPP contributions for both the employee and the employer at a rate of 4% each. Self-employed individuals must contribute the entire 8% contribution to the YAMPE.

Old Age Security (2024+)

The OAS repayment threshold is set at $90,997 for 2024. For every dollar above this threshold, OAS benefits will be reduced by 15% until its OAS is fully eliminated. Note that due to previous changes announced in 2022, OAS benefits will automatically increase by 10% for individuals 75 years of age and older. 

Prescribed spousal loan rates for (2024+)

The prescribed rate increased as of January 1, 2024, to 6% (up from 5% for Q4 of 2023) and will continue to be the rate for Q2 2024, spanning from April 1, 2024, to June 2024. The prescribed rates are indexed on the Government of Canada's three-month T-bill yield. This represents the fifth rise in rates since Q2 2022 and reduces the ability to effectively income-split with a lower income-earning spouse or common-law partner.

To recap, a spousal loan permits a higher income earning spouse to transfer wealth to the lower-income spouse for investment use. Investment income earned will not be subject to the spousal attribution rules provided the loan carries an annual interest rate at least equal to the prescribed rate of interest at the time the loan was made and that the interest is paid by January 30 of the following year. The interest income payments are included as income by the spouse who made the load, and the payment of interest is deductible from income by the spouse who received the loan, provided the loan is put to an eligible use.

Below is a snapshot of the spousal-prescribed rate loan rates over the last few years. 

Home office expenses (2023)

In response to the increasing number of individuals working from home due to the pandemic, the CRA had made two alternative methods available to employees wishing to claim home office expenses for the 2020, 2021, and 2022 taxation years: Namely, a simplified version of the “detailed method,” (this required the employer to provide a completed Form T2200, Declaration of Conditions of Employment) and the “temporary flat rate method.” Under the detailed method, the CRA provided a simplified version of the form for employees wishing to only claim home office expenses.

It has been confirmed that the CRA will be removing the option of the temporary flat rate method for 2023, meaning only the detailed method will be available. Additionally, the simplified version of the Form under the detailed method will no longer be available. That said, the CRA has updated the 2023 version of the form to make it easier for employers to complete for employees wishing to only claim home office expenses.

Employers may see an influx of requests for a completed Form T2200, Declaration of Conditions of Employment, from employees wishing to claim eligible home office expenses.

New Multigenerational Home Renovation Tax Credit (2023+)

A new refundable tax credit known as the Multigenerational Home Renovation Tax Credit is applicable to the 2023 and subsequent tax years. The tax credit is in respect of work performed and paid for and/or goods acquired on or after January 1, 2023.

The credit is targeted for renovations and expenses up to $50,000, which equates to up to $7,500 in tax credits. Generally, a qualifying expenditure is a renovation or alteration of, or addition to, an eligible dwelling that is of an enduring nature and integral to the home and is undertaken to enable the individual to reside in the dwelling with a relative by establishing a secondary unit for occupancy.

The 2023 T1 return includes a new line (Line 45355) and schedule (Schedule 12) for claiming the new multigenerational home renovation tax credit.

Property flipping and deeming provisions (2023+)

Property flipping is the act of buying real estate for the purpose of reselling it at a profit a short time later. Existing tax rules may treat profits from property flipping as fully taxable income, as opposed to capital gains. Existing rules also prohibit property flippers from claiming the principal residence exemption (PRE) on the sale of a flipped property.

The Department of Finance had concerns that some property flippers were incorrectly reporting sales as capital gains and/or claiming the PRE. As a result, the 2022 Budget introduced amendments that automatically deem profits from the resale of residential properties within 12 months of purchase as fully taxable income. Further, the rules preclude the seller from claiming the PRE. This rule will apply to the sale of residential properties on or after January 1, 2023.

There will be exceptions to the deeming rule if a property is sold within 12 months for any of the following reasons: Death, additions of members to the same household, separation, personal safety concerns, disability or illness, employment change, insolvency, or involuntary dispositions (for example, if a natural disaster were to force the owner to relocate).

Denial of expense deductions for short-term rentals (2024+)

Budget 2023 introduced Federal changes that will deny the use of income tax deductions for expenses incurred to earn short-term rental income, such as interest expenses, in provinces and municipalities that have prohibited short-term rentals. Further, this denial will apply when short-term rental operators are not compliant with the applicable provincial or municipal licensing, permitting, or registration requirements. The change hopes to convert short-term rental units into long-term rental units, thereby increasing the supply of units in a competitive and pricey housing market. The changes took effect on January 1, 2024.

New Alternative Minimum Tax (AMT) 2023+

The AMT has been in place since 1986 and was designed to prevent individuals from making disproportionate use of preferential tax treatments and to ensure a certain amount of tax remains payable despite targeted tax benefits being claimed.

AMT requires a separate tax calculation to be conducted along with an individual’s regular income tax calculations by taking into consideration certain tax-preferred treatments or deductions that an individual claimed in the tax year. In other words, the regular taxable income is recalculated based on a different set of assumptions to arrive at an adjusted taxable income for AMT purposes; this re-establishes the “AMT income base” for which the AMT tax can be calculated. This alternative calculation involves the add-back of specific targeted deductions to taxable income otherwise determined under the regular method and excludes certain tax credits otherwise available.

Under the previous AMT rules, an individual (other than a trust) was entitled to a basic exemption of $40,000 when determining the adjusted taxable income under the AMT calculation. Instead of the progressive tax rates used in regular tax calculations, a flat rate of 15% is used to calculate the minimum tax payable. If the calculated AMT is greater than the regular tax otherwise payable, the individual must pay the AMT. The excess of AMT over the regular tax otherwise payable may be carried forward for up to seven years and recovered against regular taxes, subject to certain limitations.

With Budget 2023, many proposals to the AMT were introduced. Firstly, there was a broadening of the base to which income will be subject. As AMT intends to target high income earning individuals, the base exemption from which AMT applies is from the fourth income tax bracket. For 2023, that is $165,431, and for 2024 it is $173,205.

Secondly, there are limits to various tax preferences in the form of deductions, exemptions, and credits. For instance, the regular income tax inclusion rate for capital gains is 50%. Under the previous AMT regime, the inclusion rate increases to 80%, and with the new AMT regime, capital gains will be fully included as income at 100%, putting them on the same footing as interest income. The same will be true for a donation of publicly donated securities. Where securities are donated in kind to a registered charity, the inclusion rate for capital gains is reduced from a regular rate of 50% to 0%. Under the new AMT regime, the capital gains inclusion rate will increase to 30%.

Finally, there is an increase to the AMT tax rate from which adjusted income will be taxed, increasing from 15% to 20.50%. With the new adjustments to the initial proposed AMT regime as announced in Budget 2023, the AMT regime targets higher net worth individuals, and it will require careful examination of various deductions and exemptions claimed in the year to determine if AMT is payable under the new regime.

Enhanced Trust Reporting (2023+)

All trusts with a taxation year ending after December 30, 2023, must now be compliant with the new enhanced trust reporting requirements starting in 2023. Specifically, the new trust reporting rules will apply to express trusts, bare trusts, and, for civil law purposes, a trust that is other than a trust established by law or by judgement. Certain exemptions to the enhanced reporting requirements are permitted, provided certain conditions are met.

The new rules require trusts to obtain beneficial ownership information on an annual basis to be reported on the new tax schedule, T3SCH15, Beneficial Ownership Information on Trust. Previously, trusts that were not required to file a Trust income tax return will now be required to do so, including bare trusts.

On bare trusts specifically, given the nature of the changes and reporting requirements, the CRA announced that it would waive the late-filling penalty for the 2023 taxation year for bare trusts only as a temporary administrative measure. The filing deadline for the 2023 taxation year is March 30, 2024. However, since March 30, 2024, falls on the Saturday of Easter weekend, the returns will be due on Tuesday, April 2, 2024. Note, however, that the CRA reserves the right to charge penalties for failures to file by the deadline if that failure is made knowingly or due to gross negligence.

FATCA/CRS enhanced compliance regime (2023+)

The last several years have seen some significant changes to the CRA guidance on the Foreign Account Tax Compliant Act (FATCA) and Common Reporting Standards (CRS). The increased compliance will likely materialize in more frequent correspondences across financial institutions with respect to the client’s tax residency status as it pertains to their non-registered investments. Reporting institutions will be looking for a status confirmation (i.e., either “non-reportable” or “reportable”) concerning all new non-registered accounts in the client name, including pre-existing accounts that have experienced a change in circumstances.

Further information on these changes can be obtained by contacting the Invesco Tax & Estate InfoService.