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Category: Personal

First Home Savings Account

Posted on by david

Beginning in 2023, Canadians planning to buy their first home may open a First Home Savings Account (FHSA). This is a registered savings plan for any Canadian, over the age of 18, who has not previously owned a home that they have resided in for the past four years.

The FHSA begins when you first open an account; it does not begin automatically. It is therefore important that you open your FHSA immediately if you plan on purchasing a home in the short-term, even if you don’t have funds to contribute in the first year. And when you do open a FHSA, you must file your income tax return for that year. Accounts may be opened through a FHSA issuer, such as a bank, credit union, or a trust or insurance company.

You may carry forward up to $8,000 of your unused annual contribution amount to use in a later year (subject to the $40,000 lifetime contribution limit). For example, if you open an FHSA in 2023 and contribute $5,000, you can contribute up to $11,000 in 2024. Carry-forward amounts do not start accumulating until after you open an FHSA.

Don’t have $8,000?  No problem. You can transfer amounts from your RRSPs to your FHSAs without any immediate tax consequences, as long as it is a direct transfer. These transfers are subject to FHSA annual and lifetime contribution limits and are not deductible from income.  Transfers from an RRSP to an FHSA do not restore your RRSP contribution room.

First Home Savings Accounts can be used to invest in Stocks, ETFs, options and much more just like a TFSA or RRSP. In essence, the FHSA is similar to TFSA and RRSPs, but specifically for people looking to buy their first home. You can also continue to contribute until you’ve reached the lifetime limit, or 15 years after the account’s initial opening.

The FHSA is different from an RRSP Home Buyers’ Plan which allows you to withdraw up to $35,000 from your RRSP to help you buy your first home. The money must be repaid to your RRSP within 15 years, otherwise it is included in income. For details visit our Home Buyers’ Plan page.

To be eligible, you must not have owned real property including a condominium or house solely or jointly with a spouse or common-law partner within the last four years. Your spouse or common-law partner also may not own your current primary residence.

For more details on the FHSA, call us at 905-898-4900, or check out CRA’s page

Trust Reporting Requirements

Posted on by david

UPDATE: March 28, 2024

The Canada Revenue Agency has announced on March 28, 2024 that bare trusts would not require a T3 Income Tax and Information Return (T3 Return) for the 2023 tax year, unless directly requested by the CRA. Further clarification will be forthcoming from the CRA regarding the future reporting requirements for bare trusts.

Navigating the New Trust Reporting Rules in Canada with In-depth Insights on Bare Trusts

The Canadian government’s new trust reporting rules, effective from the 2023 tax year onward, aim to enhance transparency and ensure accurate reporting of income generated within trusts. These changes apply to various trust structures, including family trusts, testamentary trusts, alter ego trusts, and notably, bare trusts. T3 Returns and disclosure forms for taxation years ending on or after December 31, 2023, must be filed by April 2, 2024.

Key Highlights:

Enhanced Disclosure Requirements: All trusts, including bare trusts, must adhere to more detailed reporting. This includes identifying trustees, beneficiaries, and settlors, including names, addresses, and Social Insurance Numbers. Specific transactions and events, such as distributions and contributions, must also be reported. Under these rules, beneficiaries include persons who currently have a right to income or capital as well as those having residual or contingent interests. As a result, some beneficiaries might not know that they have an interest in the trust, which could cause issues when collecting information from them.

A trust would be considered to have met the reporting requirements if it provides this information for each trust beneficiary whose identity is known or ascertainable, with reasonable effort at the time of filing. For beneficiaries whose identities are not known or ascertainable, a trust can comply by supplying sufficiently detailed information on the T3 return to determine with certainty whether any particular person is a beneficiary.

Penalties: The updated reporting rules also introduce a new penalty for non-compliance: either $2,500 or 5% of the property’s value, whichever is greater. This is in addition to the existing penalties for the failure to file a trust return. In guidance issued on December 1, the CRA announced that no penalties would be imposed for submitting a trust return and a Schedule 15 for bare trusts after the 2023 tax year deadline. It’s important to note that the filing requirement remains in place, and penalties may be applied for knowingly or grossly negligent failures to file, according to the CRA. Recognizing that the 2023 tax year marks the first instance where bare trusts must file a T3 return with the new Schedule 15, the CRA is taking an education-first approach to compliance and offering proactive relief to address potential uncertainties among bare trusts about these new requirements.

Common Exceptions:

  • Trusts which have been in existence for less than three months at the end of the year;
  • Trusts which hold less than $50,000 in assets throughout the taxation year (provided their holdings are confined to cash, certain debt obligations, and listed securities)
  • Estates that qualify as graduated rate estates during the initial 36 months after the individual’s death
  • Trusts that qualify as non-profit organizations or registered charities

Insights on Bare Trusts – Real-Life Examples: Bare trusts are a simple concept; it is where one person’s name is shown as the owner of an asset, but the asset truly belongs to someone else. The trustee is merely vested with legal title and has no independent duties or powers concerning the trust property. The trustee’s sole responsibility is to deal with the property as the beneficiary directs. The beneficiary retains the full beneficial ownership of the property in question, and, as a result, the income and gains realized on the trust property are taxed in the beneficiary’s hands.

Adding Children on Title to a Family Home or Cottage:
Scenario: Parents put property in their children’s names for estate planning purposes, or to minimize probate tax, with the parents retaining beneficial interest.

This joint ownership typically results in the creation of a bare trust, where the adult child becomes the trustee, holding legal title but with limited authority. The parent, as the settlor and sole beneficiary, retains control over decisions related to the property. The adult child acts solely on the parent’s instructions and cannot take any action without their direction.

For instance, if the parent decides to sell the family home, the adult child’s role is to convey legal title based on the parent’s instructions. The proceeds from such a sale entirely benefit the parent.

Reporting Obligation: The bare trust, in this case, involves children holding legal title while the parents are the settlors and the beneficiaries. The children must report the details of the property and the beneficial interest held by the parents.

Parents Holding Partial Title on Children’s Property:
Scenario: Parents and children jointly own a property, with each party having a distinct share in the property.

In the current competitive real estate market, it’s not uncommon for parents to agree to be included on the deed and mortgage for their adult child’s home. This helps facilitate the child’s eligibility for a mortgage even though the parents haven’t financially contributed to the purchase and won’t have any active responsibilities concerning the property. In this case, it is likely a bare trust has
been created.
Reporting Obligation: In this scenario, each party’s ownership interest must be disclosed. The trustees, in this case, are both the parents and the children and the reporting should outline the specifics of each party’s share.

Joint Bank Accounts:
Scenario: A parent includes their child as a joint owner of a bank account, allowing the child to assist with tasks like bill payments and other banking matters on behalf of the parent. Both individuals acknowledge that the funds in the account are intended exclusively for the parent’s benefit.

Reporting Obligation: The trust reporting requirements may extend to joint bank accounts where one party holds legal title, and the other party is a beneficiary. The details of the account, including transactions and beneficial interests, must be accurately reported.

In-Trust-For Accounts:
Scenario: A parent deposits money into an “in-trust” account for the benefit of a minor family member. In this arrangement, the minor, designated as the beneficiary, has the right to close the account and access all funds once they reach the age of 18.

Reporting Obligation: The trust reporting requirements may extend to informal “in-trust-for” accounts where one party holds legal title, and the other party is a beneficiary. The details of the account, including transactions and beneficial interests, must be accurately reported.

Conclusion
Staying informed about the new trust reporting rules, especially concerning bare trusts, is critical for trustees. It is crucial to note that bare trusts will now be required to file a T3 tax return, adhering to the enhanced disclosure requirements outlined by the Canadian government. Our team is here to support you in adapting to these changes and ensuring a seamless transition. If you have any questions or require further clarification on how these changes may impact your specific bare trust situation, please do not hesitate to reach out to us. We are committed to assisting you in navigating the evolving landscape of
tax regulations.

Deadline Extended – Canada Emergency Business Account (CEBA)

Posted on by david

The CEBA deadline has changed:

The repayment deadline for CEBA loans to qualify for partial loan forgiveness has been extended to January 18, 2024, for all eligible borrowers in good standing.

If the load remains outstanding past this due date, it will convert to a non-amortizing term loan with the full principal repayment due December 31, 2026.

Outstanding loans would subsequently convert to two-year term loans with interest of 5 per cent per annum commencing on January 1, 2024, with the loans fully due by December 31, 2025.

2024 Combined Federal and Ontario Personal and Corporate Income Tax Rates (includes 2023 rates)

Posted on

2024 Combined Federal and Ontario Personal Income Tax Rates(I)

Taxable
Income		Salary/
Interest (%)		Eligible
Dividends (%)		Ineligible
Dividends(II) (%)		Capital
Gains (%)
First $51,44620.05(6.86)9.2410.03
$51,447–$55,86724.15(1.20)13.9512.08
$55,868–$90,59929.656.3920.2814.83
$90,600–$102,89431.488.9222.3815.74
$102,895–$106,73233.8912.2425.1616.95
$106,733–$111,73337.9117.7929.7818.95
$111,734–$150,00043.4125.3836.1021.70
$150,001–$173,20544.9727.5337.9022.48
$173,206–$220,00048.2932.1141.7224.14
$220,001–$246,75249.8534.2643.5124.92
Over $246,75253.5339.3447.7426.76

(I) These rates do not include the Ontario Health Premium. (II) These rates apply to the actual amount of taxable dividends received from taxable Canadian corporations. Eligible dividends are those paid by public corporations and private companies out of earnings that have been taxed at the general corporate tax rate. E. & O.E.

2024 Combined Federal and Ontario Corporate Income Tax Rates

2024
General Rate26.50%
Small Business (to $500,000)12.20%
Investment50.17%

Based on corporations with fiscal years commencing January 1, 2024, and ending December 31, 2024.

E. & O.E.

2023 Combined Federal and Ontario Personal Income Tax Rates(I)

Taxable
Income		Salary/
Interest (%)		Eligible
Dividends (%)		Ineligible
Dividends(II) (%)		Capital
Gains (%)
First $49,23120.05(6.86)9.2410.03
$49,232–$53,35924.15(1.20)13.9512.08
$53,360–$86,69829.656.3920.2814.83
$86,699–$98,46331.488.9222.3815.74
$98,464–$102,13533.8912.2425.1616.95
$102,136–$106,71737.9117.7929.7818.95
$106,718–$150,00043.4125.3836.1021.70
$150,001–$165,43044.9727.5337.9022.48
$165,431–$220,00048.2932.1141.7224.14
$220,001–$235,67549.8534.2643.5124.92
Over $235,67553.5339.3447.7426.76

(I) These rates do not include the Ontario Health Premium. (II) These rates apply to the actual amount of taxable dividends received from taxable Canadian corporations. Eligible dividends are those paid by public corporations and private companies out of earnings that have been taxed at the general corporate tax rate. E. & O.E.

2023 Combined Federal and Ontario Corporate Income Tax Rates:

2023
General Rate26.50%
Small Business (to $500,000)12.20%
Investment50.17%

Based on corporations with fiscal years commencing January 1, 2023, and ending December 31, 2023.

E. & O.E.

2023-2024 Climate Action Incentive

Posted on by david

In 2019, the federal government levied carbon taxes on fuel in provinces that did not create a carbon tax plan of their own.  Since this tax will mostly fall on consumers, families will receive a refund to offset the cost.

Prior to 2021, the CAI was a refundable tax credit claimed annually on personal income tax returns.

However, from 2022 forward, the CAI payment is paid as a quarterly benefit.

If you are entitled, you will automatically receive your 2023-2024 CAIP four times a year, starting in July, 2024.

Family MemberOntarioManitobaSaskatchewanAlberta
First adult$488$528$680$772
Second adult$244$264$340$386
First child$122$132$170$193
Second child$122$132$170$193
Total$976$1,056$1,360$1,544

There will still be a 10% supplement for residents of small and rural communities (where public transit options are limited or unavailable)

We have noticed some confusion with the Supplement for Residents of Rural and Small Communities.   On the Schedule 14, it lists various Ontario census metropolitan areas.   If you do not see your town or city listed, it does not mean you are eligible for the Supplement.  For example, Newmarket and Aurora fall under the Toronto CMA.    

For a full listing of CMAs, click here

Underused Housing Tax

Posted on by david

UPDATE: November 21, 2023

  1. Filing was extended to April 30, 2024.
  2. The economic update has proposed the following:

Excluded owners – Expansion of the base of owners of residential property in Canada that are exempt from the UHT and the annual reporting obligations by making specified Canadian corporations, partners of a specified Canadian partnership, and trustees of a specified Canadian trust excluded owners, as well as by expanding the definitions of “excluded owner”, “specified Canadian partnership” and “specified Canadian trust” to include a broader range of Canadian ownership structures, effective for 2023 and subsequent calendar years.

Penalties – Reduction of the minimum failure to file penalties to $1,000 (from $5,000) per failure for individuals and to $2,000 (from $10,000) per failure for corporations, effective for 2022 and subsequent calendar years.

Employee accommodations – Introduction of a new UHT exemption for residential properties held as a place of residence or lodging for employees, effective for 2023 and subsequent calendar years. This exemption would apply for residential properties located anywhere in Canada other than in a population centre within either a census metropolitan area or a census agglomeration having 30,000 or more residents.

Technical changes – Introduction of additional technical changes to ensure the UHT applies in accordance with its policy intent and to ensure uniformity of tax statutes. These changes would include, for example, providing that unitized apartment buildings are not “residential property,” for UHT purposes, effective for 2022 and subsequent calendar years, and ensuring that the vacation property UHT exemption can be claimed by an individual or a spousal unit for only one residential property for a calendar year, effective for 2024 and subsequent calendar years.

EY. (December 13, 2023) Proposed amendments to the UHTA provide relief for taxpayers. https://www.ey.com/en_ca/tax/tax-alerts/2023/tax-alert-2023-no-51.

What this means is that all specified Canadian partnerships, corporations, and trust will no longer be required to file a UHT return for 2023. However, returns for 2022 are still required.

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The Underused Housing Tax (UHT) was introduced last year aiming to penalize foreign investors in residential real estate in Canada. The UHT levies a 1% tax on the value of residential properties that are vacant or underused.

The deadline for filing the UHT return is April 30, 2024, to avoid the imposition of penalties and interest.

The rules require residential property owners (with some exceptions, as discussed below) to file an annual UHT return, even if only to claim an exemption from the tax. This means that even where there is no tax payable a return must be filed for each eligible property. Significant penalties apply if the UHT return is not filed on time.

Properties subject to UHT
Unless an exemption is available, the UHT applies to residential properties located in Canada including:

  • detached houses (containing up to three dwelling units),
  • semi-detached houses,
  • rowhouse units,
  • residential condominium units, or
  • any other similar premises intended to be owned as a separate unit or parcel.

Property owners that are excluded

An excluded owner is not subject to the UHT and is not required to file the annual UHT return. An excluded owner, which is not an affected owner, is one of the following:

  • An individual Canadian citizen or permanent resident of Canada
  • A publicly traded Canadian corporation
  • A person with title to the property in their capacity as trustees of various widely
    held trusts
  • A registered charity
  • A cooperative housing corporation
  • A municipal organization or other public institutions and government bodies.

All other owners, called affected owners, are required to file an annual return and pay the UHT unless they meet an available exemption. Specifically, all private corporations, partnerships, and trusts which own residential property in Canada, as well as individuals who are neither a Canadian citizen nor a permanent resident, are required to file an annual return to either claim an exemption from the tax or to determine the tax payable.

Available Exemptions:

Certain characteristics or uses of the property may exempt a residential property from UHT for a given calendar year. An annual return must be filed to claim the exemption. Exemptions include:

  • Primary place of residence: The residential property (or a dwelling unit within)
    is the primary place of residence for the owner, the owner’s spouse or common-
    law partner, or the owner’s child. Special rules apply to owners with multiple
    properties.
  • Qualifying occupancy: The property was occupied for at least 180 days in the
    year, made up of one or more periods that are at least one month by:
    • A third party under a written rental agreement
    • A related person paying fair rent to the owner
    • The owner’s spouse or common-law partner in Canada under a work permit
    • The owner’s spouse, common-law partner, parent, or child who is a Canadian citizen or permanent resident
  • Limited seasonal access: The property was not suitable for year-round use as a place of residence or was inaccessible during part of the year.
  • Disaster or hazardous condition: The property was uninhabitable for at least 60 consecutive days in a calendar year due to disaster or hazardous conditions (limits apply to how many times an exemption can be claimed for the same disaster/condition).
  • Renovation or construction: The property was uninhabitable for at least 120 consecutive days in a calendar year due to renovation or where construction of the property was not substantially completed before April of the calendar year.
  • Construction of property for sale: The property was substantially completed after March of the year, was offered for sale to the public and was not previously occupied.
  • Year of acquisition: The property was first acquired by the owner during the year (by sale or transfer)
  • Upon death of owner: This exemption applies to the year in which the owner died as well as the following calendar year. It extends to the personal representative of a deceased individual as well as to surviving owners of jointly owned property of which the deceased owned at least 25 percent.
  • Specified Canadian corporation: The property was owned by a Canadian corporation with less than ten percent foreign ownership.
  • Partner of specified Canadian partnership: The property was owned by partners of a partnership where all members were either excluded owners or specified Canadian corporations.
  • Trustee of specified Canadian trust: The property was owned by a trustee of a trust where all beneficiaries with an interest in the property were either excluded owners or specified Canadian corporations.
  • Prescribed area: The property was located in a prescribed area based on census data and the owner, spouse, or common-law partner resided in the property for at least 28 days in the calendar year.

How is the UHT calculated?

The UHT payable is calculated as one percent of the property value multiplied by the applicable ownership percentage.

The property value is the greater of (i) the assessed value for the year for property tax purposes, and (ii) the most recent sale price on or before December 31 of the calendar year. Owners can also make an election to use the fair market value where a written appraisal is obtained to support the value.

What else do I need to know?

A sale or transfer by a non-resident person of property located in Canada gives rise to specific tax and reporting requirements, including requesting a certificate of compliance from the CRA under section 116 of the Income Tax Act.

THE BOTTOM LINE:

The spirit of the UHT is to penalize foreign investors in residential real estate. If you are an excluded owner you are not subject to the UHT and not required to file an annual return.

That being said, the UHT is new and on the surface seems complex. Please contact us with any questions you might have.

Multigenerational Home Renovation Tax Credit

Posted on by david

Introduced in 2023, this credit helps with the cost of renovating a home, for the purpose of adding a secondary unit for an extended family member to live in. Specifically, the person who lives in this new dwelling must be a family member and must be either a senior, or a related adult who is eligible for the disability tax credit.

The credit is fifteen per cent of the cost of the renovation, up to $50,000. The maximum credit is $7,500.

The secondary unit must self-contained, have a private entrance, kitchen, and bathroom. The unit must also be occupied (or reasonably expected to be occupied) within twelve months after the end of the renovation.

Expenses that qualify for the credit, include items such as the purchase of goods or services, permits, and rental equipment used in the renovation.

Expenses such as regular maintenance, home-entertainment devices, appliances, and housekeeping (indoor or outdoor) services do not qualify.

The credit is for qualifying expenditures made within 2023, and the claim is made on the 2023 personal income tax return.

For more information regarding this tax credit, please click here.

Anti-Flipping Rule

Posted on by david

In an attempt to cool off the housing market the federal government has implemented an anti-flipping rule on properties.

Any residential property that has been held for less than 12 months is considered ‘flipping’. This means that the profits on that property will be considered business income, and will be subject to full taxation. The property will not be eligible for either capital gains treatment (which is 50% of the gain), or the principal residence exemption.

This new tax will be applied to any property sold after January 1, 2023.

In addition, the Fall Economic Statement proposed to extend this rule to assignment sales. Therefore, profits arising from an assignment sale would be deemed to be business income if the rights to purchase a property were assigned after having been owned for less than 12 months.

Exempt from this rule are life changing events that otherwise explain the quick turn-over of the property, including a birth of a child, new job, separation or divorce, death, disability, insolvency, or other significant changes in life circumstances.

Contact us or visit www.canada.ca for more information.

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