2023 year-end tax considerations

Personal

Important payments dates

You may be aware of the payments that must be made by December 31 to qualify for 2023 tax deductions or credits (e.g., charitable donations, federal or provincial political contributions). Consider also the following deadlines which can impact your 2023 tax year:

• December 15, 2023 — Final 2023 instalment due date.
• January 30, 2024 — Payment of any interest on loans from your employer (to reduce your taxable benefit) and interest owed on loans from family members.
• February 14, 2024 — Reimbursement of any personal motor vehicle expenses to your employer to reduce your taxable benefit from an employer-provided vehicle.
• February 29, 2024 — Repay RRSPs withdrawn under a Home Buyers’ Plan or Lifelong Learning Plan; make RRSP contributions for yourself or a spouse / common-law partner.
• April 30, 2024 — Final personal tax payments for 2023 are due.

Make all instalment and final tax payments by the deadlines above to prevent incurring interest charges.

Self-employment expenses

Ensure you document all self-employment expenses with receipts and maintain a logbook to support all motor vehicle expenses and taxable benefit calculations.

Employment expenses

Track and retain receipts for annual union, professional, or other dues not paid/reimbursed by your employer.

In the last two years, those who worked from home more than 50 percent of the time for at least four consecutive weeks in the year could claim home office expenses based either on a flat rate or actual expenses. At the time of writing, CRA has not confirmed if the same will apply for 2023.

RRSPs

Make contributions to your Registered Retirement Savings Plan (RRSP) to reduce taxable income for the year. Contributions made to a spouse or common-law partner’s RRSP are also deductible. The 2023 contribution limit is 18 percent of your 2022 earned income to a maximum of $30,780. Check your 2022 Notice of Assessment for your available contribution room for 2023. Contributions must be made on or before February 29, 2024, to be deductible for 2023.

RESPs

Contributions to a Registered Education Savings Plan (RESP) will not impact your 2023 income tax liability. However, it will allow you to save for your child’s future education and utilize the Canada Education Savings Grant (up to $500 annually and a lifetime maximum of $7,200 per child).

TFSAs

Income earned in a Tax-Free Savings Account (TFSA) will not be subject to future income tax. The 2023 limit is $6,500. Check with CRA and your financial institutions to confirm your TFSA contribution room.

FHSAs

A First Home Saving Account (FHSA) allows you to save for the purchase of a first home while reducing taxable income for the year through tax-deductible contributions. Additionally, qualifying withdrawals (including investment income earned) to purchase a first home are non-taxable.

The 2023 limit is $8,000. Unlike the TFSA, the FHSA contribution room does not automatically accrue. This means you should open an FHSA account now to start accruing contribution room, even if you are not quite ready to make the contributions this year.

Charitable donations

The federal and provincial governments offer donation tax credits, resulting in tax savings of up to 50 percent of the value of the gift. The right donation strategy can help minimize income taxes while meeting your philanthropic goals. Given the proposed Alternative Minimum Tax Changes for 2024 (discussed below), consider whether a 2023 donation would be more effective in meeting your philanthropic goals.

Multigenerational home renovation

Effective 2023, the Multigenerational Home Renovation Tax Credit is a refundable tax credit that provides up to $7,500 for certain costs incurred to construct a secondary dwelling unit for a senior or a person with a disability.

Recent and upcoming changes to consider

Residential property flipping rule

Starting in 2023, profits arising from dispositions (i.e., sale) of residential property (including rental property) owned for less than 12 months or from an assignment sale will be fully taxed as business income instead of as a capital gain.

Alternative minimum tax

Proposed alternative minimum tax (AMT) rules that are expected to take effect in 2024 will limit tax preferences (i.e., exemptions, deductions, and credits) in the AMT calculation.

These changes will broaden the AMT impact on high-income individuals. It will particularly impact those for whom a significant component of their income is represented by taxable capital gains and those claiming significant tax credits, such as donations.

Speak to an MNP Tax advisor to discuss alternatives to help minimize the impact of the new AMT rules. 

Trust reporting rules

Effective for tax years ending December 31, 2023, or later, most trusts that previously did not have to file an annual T3 income tax return will no longer be exempt. This change is significant, as many more trusts (including bare trust arrangements) will have to start filing a T3 annually going forward.

Trusts must also disclose additional information in the T3 for tax years ending December 31 and later. Connect with an MNP advisor to discuss whether these rules may impact you and to understand your potential T3 filing obligations.

Underused housing tax

Starting in 2022, a one percent annual tax will apply to certain underused or vacant residential properties owned by non-Canadian citizens or non-Canadian permanent residents. The tax will continue to impact such property owners on record on December 31, 2023.

It’s important to note that even though an owner may be exempt from the tax, an underused housing tax (UHT) return must be filed annually to claim the exemption. Many Canadian corporations, partnerships, and trusts holding residential property — including those with no foreign ownership or foreign beneficiaries — must file a return for each property annually, even where no tax is payable.

Significant penalties apply if the UHT return is not filed on time. The due date for 2023 UHT returns will be April 30, 2024.

Excessive interest and financing expenses limitation

Proposed rules introduced by the federal government aim to restrict the deduction of interest and financing expenses by certain taxpayers to a proportion of their earnings before interest, taxes, depreciation, and amortization for income tax purposes.

Excluded entities will not be subject to the limitation and generally include any of the following:

• CCPCs that, along with any associated corporations, have taxable capital employed in Canada of less than $50 million
• Groups of corporations and trusts whose aggregate net interest expense among their Canadian members is $1 million or less
• Certain standalone Canadian-resident corporations and trusts and groups that consist exclusively of Canadian-resident corporations and trusts that carry on substantially all of their business in Canada.

If enacted, these excessive interest and financing expenses limitation (EIFEL) rules will apply to tax years beginning on or after October 1, 2023.