Major Changes to Personal Tax Rules in Canada for 2023

With tax season upon us, it’s vital to acknowledge the legal obligations that both individuals and companies face in terms of paying taxes. Being well-versed in the latest tax developments and best practices is key to fulfilling this responsibility while optimizing tax savings.

In this blog post, we’ll delve into the latest amendments to Canada’s tax laws, equipping you with the knowledge to navigate these changes with ease.

Introduction

As the Canadian tax system continues to adapt to the changing needs of its taxpayers, staying abreast of new developments is crucial for maintaining compliance and optimizing your tax strategy, ensuring you stay informed and prepared for what lies ahead. Read on to discover a comprehensive list of the key changes in 2023 that significantly affect individual taxpayers.

1. Revision to Federal Tax Brackets

The Government of Canada has updated the tax brackets for the 2022 tax year, which translates to a reduced tax rate on a larger portion of your income earned this year.

A tax bracket is a specific range of income that is subject to a certain tax rate. The federal government’s progressive tax system consists of five tax brackets.

The five federal tax brackets for 2022 are:

• Income earned up to $50,197is taxed at 15%
• Income earned at $50,197up to $100,392 is taxed at 5%
• Income earned at $100,392up to $155,625 is taxed at 26%
• Income earned at $155,625up to $221,708 is taxed at 29%
• Income earned at $221,708and above is taxed at 33% (this is the top tax bracket)

For those whose income falls within one of the higher tax brackets, it’s important to note that not all of their income is taxed at the higher rate. Only the amount of income within that particular range is taxed at the higher rate.

2) New Anti-Flipping Rules for Residential Property

Starting January 1, 2023, new anti-flipping rules will apply to the sale of residential properties that are held for less than a year. These rules will consider the sale of such properties as income and not capital and deem the taxpayer to be carrying on a business.

Consequently, taxpayers who sell a residential property after owning it for less than a year will no longer be eligible for the Principal Residence Exemption on the sale. Instead, they must report the sale as business income rather than the disposition of capital property. Additionally, any loss incurred from the sale of a flipped property will be considered nil under these rules.

For more details on the anti-flipping law, click here.

3) Change to First-time Home Buyer Tax Credit

The amount used to calculate the first-time home buyers’ tax credit has increased to $10,000 (from $5,000) for a qualifying home purchased after December 31, 2021.

4) Home Accessibility Tax Credit

This non-refundable tax credit is available for eligible home renovation or alteration expenses that allow a qualifying individual (senior or person with disability) to:

• Gain access to, or be mobile or functional within, an eligible dwelling, or
• Maintain safety while inside a dwelling or accessing it, because measures have been put in place to reduce the risk of harm.

In addition, for the 2022 tax year, the annual expense limit has been raised to $20,000, allowing eligible individuals to claim a higher amount for safety enhancements.

5) Introduction of Mobility Expense Deductions for Tradespersons

Under this new deduction, eligible tradespeople and apprentices working in the construction industry may deduct up to $4,000 in eligible temporary relocation expenses per year (see Form T777 for more information).

6) Medical expense tax credit for surrogacy and other expenses

The list of eligible medical expenses was expanded as of 2022 to include amounts paid to fertility clinics and donor banks in Canada to obtain donor sperm or ova to enable a child’s conception by the individual, their spouse or common-law partner, or a surrogate mother on their behalf.

As part of the changes, certain expenses incurred in Canada for a surrogate or donor are now classified as individual medical expenses. This change expands the scope of medical expenses that can be claimed on an individual’s tax return, allowing for a broader range of eligible expenses.

7) Air Quality Improvement Tax Credit

Self-employed individuals and partnership members can claim a refundable tax credit of 25% of their total expenses to improve ventilation or air quality at their place of business. The expenses must have incurred between September 1, 2021 and December 31, 2022, and is limited to $10,000 per location and $50,000 in total.

8) Immediate expensing for self-employed individuals

The federal government introduced a temporary immediate expensing incentive for certain eligible property that an eligible person or partnership acquires. Self-employed individuals can claim a deduction for property acquisition, but only for property obtained after December 31, 2021, and up to a maximum of $1.5 million. However, the property must become available for use before 2025 to qualify for this deduction.

KEY REMINDERS FOR 2022 RETURNS

While preparing 2022 tax returns, it’s essential to keep in mind the following measures that are not new for the year:

1. COVID-19 benefit payments: T4Aslips will be issued to taxpayers who received federal, provincial or territorial government COVID-19 benefit payments, such as the Canada Recovery Benefit, Canada Recovery Sickness Benefit, Canada Worker Lockdown Benefit and Canada Recovery Caregiving Benefit. These amounts must be reported as income.
2. Climate action incentive payment: Residents of Alberta, Saskatchewan, Manitoba and Ontario must file a tax return to be eligible for this payment, even if they did not earn income in the year. These payments will be received quarterly but no longer as part of the personal tax return.
3. Home office expenses: Employees working from home due to COVID-19 lockdowns in 2022 can claim home office expenses using the same rules that applied in 2021.
4. The Canada Training Credit: which allows eligible individuals to claim a refundable tax credit for eligible tuition and fees paid in pursuit of courses or training programs.
5. The Climate Action Incentive:a tax credit available to residents of provinces and territories that have not implemented a carbon pricing system.
6. The Canada Workers Benefit:a refundable tax credit that supplements the income of low-income individuals and families who are working but earning low wages.

In conclusion, the 2022-2023 tax season brings several significant changes for all taxpayers. It is crucial to stay informed and understand how these changes will impact your tax obligations.

We will continue to provide more in-depth analysis of these new tax measures and their implications for taxpayers in the coming weeks. So keep checking in for more blog posts and updates.

If you need professional assistance with your tax planning, compliance, or other related matters, our team of experts at Taxvisors is here to help. Contact us today to schedule a consultation and let us guide you through these changes to ensure your financial success.