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2023 Year-end Tax Planning Tips - Individuals

Updated: Jan 26

2023 Tax Updates


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2023 Year-End Tax Tips - Individuals
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Personal tax rates:


Personal top marginal tax rate: in Ontario remained at 53.5% in 2023. Click to see our tax rate chart:


New real estate policies:

  • Tax-free first home savings account (FHSA): If you are a Canadian resident age 18 or older, contribute to a FHSA (starting in 2023) to help save towards a qualifying first home purchase. Contributions are deductible (like an RRSP) up to $8,000 annually ($40,000 lifetime limit, undeducted contributions can be carried forward and deducted in a later year), earnings on the savings are tax-free and qualifying withdrawals are non-taxable (like a TFSA).

  • First-time Home Buyer’s tax credit: An amount of $10,000 for a qualifying home purchase and neither individual or spouse owned & lived in another home in year of purchase or any 4 preceding years.

  • Multigenerational Home Renovation tax credit: a refundable tax credit on eligible expenses for a qualifying renovation update to $50,000.

  • Home Accessibility tax credit: An amount of $20,000 for eligible home renovation that will allow seniors & persons with disabilities to live more independently at home.

  • Anti House Flipping: profits arising from certain dispositions after 2022 of residential properties owned for less than 12 months are deemed to be business income and the principal residence exemption cannot be used.

  • GST/HST on Assignment Sales: making all assignment sales of newly constructed residential housing taxable. To eliminate an element of double taxation, the amount attributable to a deposit to be excluded from the consideration of the assignment sales subject to GST/HST.

  • An annual 1% underused housing tax (see our link UHT): applies on the value of non-Canadian owned Canadian residential property considered to be vacant or underused. Certain residential property owners (other than an “excluded owner”) in Canada are required to file an annual declaration for each Canadian residential property they own, even if they can claim an exemption from the tax. For 2022 tax year, the deadline to file the UHT return and pay tax owing is extended to April 30, 2024 – the same due date as for the 2023 tax year UHT return.

  • 2 Years ban on foreign buyers of residential restate: Starting in 2023, except for a permanent resident, work permit holder or student visa holder. Details see CMHC website.

  • Ontario NRST: increased to 25% and on certain residential properties provincewide.


Individuals


Year-end tips:

  • Must report sale of principal residence: in personal tax returns (including change of use or deemed dispositions) and designate principal residence for dispositions (T2091). Discuss with us for any sale or any change of use of real estate properties.

  • Make charitable donations and political contributions before year end. Take advantage of higher tax credits and first-time donor’s super credit (25% on up to $1,000 donations)

  • Employee gifts and awards – Ask your employer to provide you with non-cash gifts/awards. These will not be taxable to you if you receive non-cash with a total value to you of $500 or less annually.

  • Job-related courses – Ask your employer to pay for job-related courses directly, rather than paying you additional remuneration.

  • Canada training credit – Starting 2020, eligible individuals aged 25 to 65 who are enrolled at eligible educational institutions can claim this new federal refundable tax credit on tuition and fees for training (annual allowance of $250 per year; $5,000 maximum lifetime tax credit).

  • Home office expenses – If you work from home, ask your employer to issue a Form T2200 and track home office expenses and retain relevant utilities, supplies and maintenance receipts.

  • Pay childcare expenses for 2023 by December 31, 2023 and get qualifying receipts. If you reside in Ontario, claim the Ontario childcare access and relief from expenses (CARE) tax credit; a refundable credit of up to 75% of eligible childcare expenses for individuals with family income up to $150,000.

  • Caregiver tax credit – if you are a caregiver, claim available federal and provincial tax credit. It requires that you support a mentally or physically infirm dependant, but the dependant is not required to live in caregiver’s home but must be resident of Canada.

  • Contribute $6,500 TFSA (tax free savings account). If you are planning a withdrawal from your TFSA, consider doing so before the end of 2023 instead of early in 2024 – amount withdrawn are not added to your TFSA contribution room until the beginning of the year after the withdrawal. Be mindful of over-contribution penalty of 1% per month for both TFSA and RRSP.

  • Home buyers’ incentives – If you are a first-time home buyer, consider withdrawing tax-free up to $35,000 from your RRSP, under the Home Buyers’ Plan. Amounts withdrawn must be repaid to your RRSP over 15 years. And claim the $10,000 first-time home buyers’ tax credits

  • Sell investments with accrued losses before year end to offset capital gains realized in the year. Matching the gain/loss year will be more crucial in 2024 under the new AMT regime (see below). Watch for superficial loss rules and consider your tax brackets.

  • Claim Allowable Business Investment Loss (ABIL) with an election under subsection 50(1). Discuss with us for the compliance rules.

  • Prescribed rate interest on intra-family loans outstanding in 2023 must be paid on or before January 30, 2024, to avoid attribution of income.

  • Alternative minimum tax (AMT) rule change in 2024 – New AMT rules will cause individuals who realize substantial capital gains to face higher AMT tax liabilities in 2024. Under new AMT rules, capital gains are fully taxable, certain deductions and tax credits are reduced by 50%, and the new AMT rate is higher than the current rate. See our newsletter: https://www.impactcpas.ca/post/new-amt-regime-for-2024. Discuss with us about your situation and any mitigating strategies.


Tax efficient invetments:

  • Hold investments intended for capital growth outside your RRSP and hold interest-generating investments inside RRSP (or TFSA).

  • Contribute to RESP for your child or grandchild. Plan for the RESP to receive the maximum lifetime Canada education savings grant of $7,200. Discuss with us about RESP withdrawing rules.

  • Canada Child Benefit – If you receive this benefit, invest the funds in a separate account in trust for your children. Investment income on these funds will not be taxable to you.

  • For high earners, consider hold investments in a corporation. Discuss the merits with us before setting up an investment holding corporation.

  • Repay debt that has non-deducible interest before other debt that has interest qualifying for deduction (e.g. investment loan) or tax credit (student loan).


International information reporting:

  • Canadian tax residents must report their worldwide income in Canada to calculate their Canadian income taxes, but can offset a certain amount of foreign tax credit.

  • T1135: Review your foreign holdings to determine if you have a reporting obligation with a total cost of specified foreign property exceeding $100,000 at any time in the year – required to file form T1135.

  • T1134: for owning shares in a non-resident corporation that is a foreign affiliate at any time in the year, must file by October 31, 2024 (i.e. due 10 months after a taxpayer’s year end). Watch out for the foreign accrual property income (FAPI) complications. Discuss the implications with us.

  • T1142: for distributions received in the year from a non-resident trust that the taxpayer is a discretionary beneficiary including the relevant distribution information.


Trust reporting:

  • T3: Effective for taxation years that end after December 30, 2023, proposed new rules require a trust (including bare trust arrangements) to report the identity of all its trustees, beneficiaries and settlors, and each person who has the ability to exert control over certain trustee decisions. This may create a new T3 return filing obligation for certain trusts. Penalties will apply for non-compliance.



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©2023 IMPACT CPA LLP, an Ontario limited liability partnership. All rights reserved.

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