Tax Season and Understand Tax Changes in 2023/2024
Do you dread tax season?
As we ring in a new year, many of us are also acutely aware that tax prep season is upon us. But instead of invoking a sense of dread and fear, properly preparing yourself by researching and consulting with a knowledgeable accountant can turn that dread into…less dread.
Tax prep is as much a mental game as it is anything else. The earlier you begin to organize, the better your chance of taking advantage of any last-minute tax-saving strategies.
It's also important to understand tax changes that have come into effect for 2022/2023 - keeping yourself up-to-date (or just letting me fill you in on the details) will allow you to be more proactive regarding taxes.
IMPORTANT DEADLINES
The deadline to file your 2023 tax return is April 30, 2024.
The deadline to contribute to your 2023 RRSP is March 1, 2024 (to claim as a deduction on your 2023 tax return).
TIPS FOR PREPARING FOR TAX FILING
When it comes to gathering tax information, I suggest starting now. This will avoid any last-minute scrambling (or surprises) as we approach the tax filing deadline.
Here are a few tips to get yourself organized:
Collect and sort all of your expense receipts, medical receipts, bills, etc. I'd suggest being proactive and keeping a scanned copy (or paper file) of all receipts
If you are a Sole Proprietor, ensure you have your bank statements for the past 12 months
Also, for Sole Proprietors, having your business expenses sorted by category on a spreadsheet is all I need to pull together your tax information. (*Note - your spreadsheet needs a robust summary of your expenses, including detailed information on business reason, date, amount, etc.)
COMPLETENESS IS KEY
Many of my clients don't understand how imperative it is for them to be as transparent as possible when updating me on major life events. Something as innocuous as your child starting a private school, having a child, or the passing of a family member, can impact your taxes.
Ensuring I have the full picture is key. Keeping me apprised of any major OR minor changes in your life will help maximize any refund you are eligible to receive while minimizing any money owed on your taxes.
TAX CHANGES FOR 2024
As with most things, tax and benefit amounts are affected by inflation. For 2024, some tax-bracket thresholds and amounts relating to non-refundable credits take effect on January 1, 2024.
But increases for some benefits, including the Canada Child Benefit and the GST/HST credit, take effect on July 1, 2024 (as these benefit programs operate on a different schedule).
IMPORTANT TAX RELATED INFORMATION
Simplified Work At Home Expenses - No longer available
This was a measure placed during COVID years. As we have since moved on from bad memories, this measure is too no longer available for the 2023 tax returns.
To claim Home Office expenses, we are back to the old-fashioned method. You may read more on this article from Financial Post.
New Trust Reporting Requirements! See my post on this topic!
Increase in unpaid tax penalty
Beginning in 2024, the penalty is 10% of the unpaid tax when the return was due, plus 2% of this unpaid tax for each complete month that the return is late, up to a maximum of 20 months. The amount owed compounds daily, and the interest comes on top of other penalties for paying late. Filing on time and making payments on time will keep costs down.
A new grocery rebate was introduced
To provide financial support to eligible Canadians, the government introduced a new Grocery Rebate to help alleviate financial strain due to rising food costs. If you filed a tax return in 2021 and you were eligible for a GST/HST credit at the time, you would qualify for the Grocery Rebate. The value of the rebate is equivalent to double the GST/HST credit amount you received in January 2023. If you filed your tax return in tax year 2022, you would have received the payment in July 2023.
Disability Tax Credit
Applying for the Disability Tax Credit has been notoriously a lengthy process. In 2023, the CRA made this process easier by going digital! Now, via My CRA Account, individuals wanting to apply can complete Part A of the application and once issued a reference number, provide this to your qualified medical practitioner who can then complete Part B digitally for you.
There’s no need to print and bring the forms to your medical practitioner anymore.
IMPORTANT CREDITS
Air Quality Improvement Tax Credit: Eligible businesses can claim 25% of their qualifying ventilation upgrades to a maximum of $10,000. In other words, a reduction to your taxes of up to $2,500.
Automobile Income Tax Deduction Limits:
The following changes to limits and rates will take effect as of January 1, 2023:
The ceiling for capital cost allowances (CCA) for Class 10.1 passenger vehicles will be increased from $34,000 to $36,000, before tax, in respect of vehicles (new and used) acquired on or after January 1, 2023.
The ceiling for CCA for Class 54 zero-emission passenger vehicles will be increased from $59,000 to $61,000, before tax, in respect of vehicles (new and used) acquired on or after January 1, 2023.
Deductible leasing costs will be increased from $900 to $950 per month, before tax, for new leases entered into on or after January 1, 2023.
The limit on the deduction of tax-exempt allowances paid by employers to employees who use their personal vehicle for business purposes in the provinces will increase by seven cents to 68 cents per kilometre for the first 5,000 kilometres driven, and to 62 cents for each additional kilometre. For the territories, the limit will also increase by seven cents to 72 cents per kilometre for the first 5,000 kilometres driven, and to 66 cents for each additional kilometre.
The general prescribed rate used to determine the taxable benefit of employees relating to the personal portion of automobile expenses paid by their employers will be increased by four cents to 33 cents per kilometre. For people who are employed principally in selling or leasing automobiles, the rate used to determine the employee’s taxable benefit will be increased by four cents to 30 cents per kilometre.
The maximum allowable interest deduction for new automobile loans of $300 per month will remain the same for 2023.
https://www.canada.ca/en/department-finance/news/2022/12/government-announces-the-2023-automobile-deduction-limits-and-expense-benefit-rates-for-businesses.html
Home Accessibility Tax Credit (HATC): Those 65 and older and are eligible for the Disability Tax Credit, and can claim renovation costs related to accessibility up to $20,000. In other words, up to a $2,500 reduction to your taxes.
Labour Mobility Deduction (LMD): This new deduction allows tradespeople, apprentices, and employees working in construction to claim meals and lodging expenses paid to earn income at a temporary work location.
New OAS limit amounts
The OAS is designed to provide retirees with a source of income to support their retirement. However, if your income is over certain limit amounts, you might find your OAS amount reduced, and even canceled entirely.
For the 2023 tax year, if your taxable income was over $81,761, you would need to repay some of your OAS. Similarly, if your taxable income was over $134,626, you would not have received any OAS payments. Thanks to the CRA’s 2022 Affordability Plan, seniors aged 75 and over received an automatic 10% increase of their Old Age Security pension, as of July 2022.
TAX BRACKET CHANGES
All income tax brackets have been changed due to inflation, using the new 6.3% rate.
The new federal tax brackets are:
$0 to $53,359 (15%)
More than $53,359 to $106,717 (20.5%)
More than $106,717 to $165,430 (26%)
More than $165,430 to $235,675 (29%)
Anything above $235,675 is taxed at 33%
BASIC PERSONAL AMOUNT CHANGES
In 2023, the basic personal amount (which you can earn without being taxed federally) has increased to $15,000. After this, any income you earn will be subject to normal tax thresholds.
It's important to note that this benefit gets reduced if your net income surpasses $165,430 and is fully phased out when your income surpasses $235,675 (taxpayers in this top bracket will have the old basic personal amount applied, which is $13,521).
FIRST HOME SAVINGS ACCOUNT (FHSA)
Due to launch as early as April 1, 2023, first-time homebuyers can save $40,000 to purchase their first home in Canada on a tax-free basis.
Similar to RRSPs, contributions are tax-deductible, but withdrawals for the purchase of a first home will be non-taxable.
HOME FLIPPING TAX
Effective on January 1, 2023, properties sold that are owned less than 12 months (specifically, 365 consecutive days) will be considered to have “flipped”. Any profits from the deal will be taxed as business income. This holds true, even if it is by definition a principal residence, in accordance to the Income Tax Act.
Regular business income is taxed at personal marginal rates and not considered a capital property (whereby 50% of the capital gains are taxable at the marginal rate). In other words, 100% of the appreciated value is taxed.
Exceptions include a certain number of life events including the death of the individual or a related party, an addition to a household, breakdown of a relationship, a threat to personal safety, serious illness or disability, work relocation or termination, insolvency or destruction or expropriation of the home.
ONTARIO CREDITS
The Ontario Staycation Credit: No longer available!
The Ontario Seniors Care at Home Tax Credit: This tax credit is to help seniors with eligible medical expenses and those with attendant care. The credit is equal to 25% of your eligible medical expenses up to $6,000. In other words, a maximum refundable credit of $1,500.
The Seniors’ Home Safety Tax Credit: Like the HATC, this credit allows 25% up to a maximum of $10,000 in eligible expenses. The maximum credit is equal to $2,500 per year.
TAX PREPARATION CHECKLIST
The following list is comprehensive so not all may be applicable to you:
T-Slips (T5, T4, T3, T4(OAS), T4A(CPP), T4E, T4A)
Employment expenses (if eligible, you should be given a form T2200 filled by employer). Common expenses include, telephone, auto costs, insurance, supplies etc.
RRSP Contribution slips
Investment summary of transactions (For capital gains/loss calculation. This can be downloaded from your trading platform like Questrade, TD Waterhouse)
Did you sell a principle residence during the year? If so, please provide the sale documents
Did you sell a property during the year? If so, please provide the sale documents
Interest expenses for investment purposes (Loans incurred to invest into a small business, or incurred for trading)
Business/Commission income and expenses (Auto expenses, auto mileage - personal vs business and travel log to/from, purchases, advertising, supplies, licenses and permits, telephone, utilities, home office, repairs and maintenance, insurance, interests expenses etc.)
Is your personal business a GST registrant? If so, there is also a filing requirement.
Rental Income and expenses (repairs and maintenance, property taxes, utilities, janitorial, common fees, mortgage interest etc.)
Did you move during the year where your new home is 40KM closer to your new place of employment than before. These moving expenses can be claimed
University/tuition tax slips (T2202A)
Property taxes/rental expenses paid for your principal residence
Child care costs/nanny costs paid in the year. If your children attended private school, there is a child care expense portion in the tuition fees. Did your lower income spouse enroll in school during the year?
Child support and/or spousal support payments/received
Summer camps and other camps paid in the year for children
Medical receipts or a print off from your insurance provider of medical expenses paid out of pocket
Donation tax receipts
Private health Insurance premiums paid
Professional/Union dues
Any significant changes to you and your family for 2023 that I should be aware of and may be utilized in filing for your taxes? Like a newborn, tying the knots, purchase a new home, or sold a old home!
Other related issues for 2023 that I should be aware of and may be used for taxes
For more information on how M.Y. Accounting Services can help you or your business, feel free to contact me at marioyu2@gmail.com or 416-566-8806.
