As preparations begin for the upcoming tax season, there are new tax measures and changes that may affect your personal income tax liability and overall financial planning.
To help you understand and prepare for the upcoming changes, we compiled a summary of the most significant federal tax changes that may affect your 2023 personal income tax return, as well as changes that may help you save taxes in 2024 and beyond.
What are the personal income tax changes in Canada for the upcoming tax season?
Residential property flipping rule
Under the new residential property flipping rule, a gain from the disposition of residential property that was owned for less than 365 days is deemed to be fully taxable as business income. Limited exceptions apply, such as death, a marital breakdown, the addition of family members, disability, a change of place of work, and insolvency.
The new rule means that the gains from such dispositions would not be eligible for the 50% capital gains inclusion rate or the principal residence exemption, and any resulting loss would be denied and cannot be claimed as a business loss.
The purpose of this new rule, which came into effect on Jan. 1, 2023, is to address the government’s concern that certain individuals who were engaged in property flipping (i.e., acquiring a residence with the intention of reselling in a short period of time for profit) were inappropriately reporting the profits as a capital gain and, in some cases, claiming the principal residence exemption.
If you purchased and disposed of Canadian residential property within a year, the new rule automatically deems the profit to be fully taxable as business income. In cases where the new rule does not apply, such as when you owned the property for over a year or an exception applies, the facts of your situation will need to be examined to determine the appropriate tax treatment (e.g., whether the disposition would be taxable as business income or a capital gain).
Contact a BDO advisor to help you understand the tax implications of your real estate transactions.
Multigenerational home renovation tax credit
The new multigenerational home renovation tax credit (MHRTC) is a refundable credit intended to assist families in building a secondary unit in their home, or on adjacent land, to enable a senior, or an adult who is eligible for the disability tax credit, to live with a qualifying relative. The MHRTC is calculated as 15% of qualifying expenditures up to $50,000, for a maximum refundable credit of $7,500.
Specific requirements must be met to be considered a qualifying renovation. It is also important to keep in mind that the MHRTC is claimed in the year that the renovation project ends.
If you or your family members completed or are contemplating a renovation to create a secondary suite for a qualifying relative, learn how you can benefit from the MHRTC by reading our article, New multigenerational home renovation tax credit may be a hidden gem.
First Home Savings Account
The new First Home Savings Account (FHSA) is a new registered account designed to allow eligible individuals to contribute up to $8,000 per year, with a lifetime limit of $40,000, to save for a down payment on a first home.
If you opened and contributed to an FHSA in 2023, your contributions are generally deductible when you file your 2023 income tax return and any unused contributions can be carried forward to a future year. Note that transfers from your RRSP to your FHSA are not deductible.
To learn more about the new FHSA and how it compares to the RRSP and TFSA, read our article, Q&A: Answering your tax questions on RRSPs, TFSAs, and the new First Home Savings Account (FHSA).
Home office expense deduction for employees
If you’re an employee who worked from home in 2023, you should know that the temporary flat rate method ($2 per day) for claiming a home office expense deduction is no longer available after 2022. This temporary method was an administrative measure that the Canada Revenue Agency (CRA) implemented during the COVID-19 pandemic.
Employees who are claiming a home office expense deduction in 2023 must use the detailed method and obtain a completed T2200, Declaration of Conditions of Employment, from their employer.
To be eligible to claim a home office expense deduction, an employee must be required to work from home and their home workspace must be:
- the place where they principally perform employment duties; or
- used exclusively to earn employment income and, on a regular and continuous basis, for in-person meetings with customers or other persons in the ordinary course of performing employment duties.
The CRA has indicated that they will consider the first criterion to be met where the employee was required to work from home for more than 50% of the time for a period of at least four consecutive weeks in the year. In addition, for 2023, if an employee has voluntarily entered into a formal telework arrangement with their employer, the employee is considered to have been required to work from home. The CRA does not require this arrangement to be in writing.
Consistent with previous years, the detailed method allows an eligible employee to claim the employment portion of actual home office expenses paid, which would require itemizing expenses and performing calculations to prorate the expenses based on the size of the workspace and time spent on performing employment duties where a common space in the home is used.
For more information on the employee home office expense deduction, refer to the CRA's updated home office expense webpage.
Enhanced Canada Pension Plan
As part of the Canada Pension Plan (CPP) enhancement, your CPP contributions have been increasing annually since 2019 and will continue to increase in 2024 if your income exceeds the yearly maximum pensionable earnings amount. Similar enhancements were made to the Quebec Pension Plan (QPP).
When you file your personal income tax return for the 2023 tax year, remember that your CPP/QPP contributions consist of a base amount and an enhanced amount. While a non-refundable tax credit on the CPP/QPP base amount continues to be available, a tax deduction can also be claimed on the enhanced portion of the CPP/QPP.
Tax-Free Savings Account contribution limit
For 2024, the Tax-Free Savings Account (TFSA) annual contribution limit increased to $7,000 and any unused contribution room will carry forward. Contributions to a TFSA aren't tax deductible and when money is withdrawn, the accumulated contributions and income received are not taxable.
How BDO can help
If you have any questions about these tax changes or how they may apply to your situation, please contact one of our trusted BDO advisors.
The information in this publication is current as of Jan. 11, 2024.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.