Financial considerations when launching a side hustle
Canadians should be aware of changes to housing taxation and other new tweaks as tax season looms.
“For most people, the rules aren't going to change a great deal,” said Bruce Ball, vice-president of taxation at Chartered Professional Accountants of Canada – but there are specific areas that could take some taxpayers by surprise.
A few of the big tax changes this year affect certain segments of homeowners.
Ottawa has introduced a tax on some empty homes called the Underused Housing Tax (UHT). It taxes 1 per cent on “vacant or underused housing,” and applies mostly to non-resident residential property owners.
“There are a number of exceptions that apply, and some of them are pretty complicated, so for any non-resident, I'd be encouraging them to look through the rules and see if they meet one of the exceptions,” Ball said.
Ball said “there are two groups of people that we’re worried about” with payments for the UHT looming – non-resident property owners and other entities that hold properties through trusts or private corporations. The latter group must file returns related to the tax even if they do not need to pay, and could face “significant” fines of $5,000 or higher if they do not.
“We're concerned that a lot of these situations involving Canadians won't be recognized and they won't realize that they have to file a return,” he said.
Some tax credits for homebuyers and owners have also increased. The federal first-time homebuyers’ tax credit has gone up to $10,000 for homes purchased after Dec. 31, 2021. The home accessibility tax credit, which covers home renovations for seniors and people with disabilities, has increased to $20,000.
People can also take advantage of a registered First Home Savings Account, which allows hopeful buyers to save up to $40,000 tax-free for the purchase of their first home.
Canadians can contribute up to $8,000 this year. Yannick Lemay, senior tax expert at H&R Block, said it’s worth it for people to open the savings account this year and contribute some funds to continue building their contributions.
Personal income amounts, benefits and tax bracket thresholds are indexed to inflation. In 2022, that meant an increase of 2.4 per cent. In 2023, the government has announced a stark increase of 6.3 per cent.
That larger increase won’t show up as people file taxes for 2022 this spring, but it will impact people next year to varying degrees, Ball said. Taxes may go down for people who enter a higher tax bracket but others could pay more when factoring increases to things like the Canada Pension Plan and Employment Insurance that are also indexed to inflation.
“It’s hard to say exactly how it'll impact people,” he said. “In some cases, they may be better off, and in other cases, it might be break even, or maybe even a bit worse off.”
TAX CREDITS AND OTHER CHANGES
A deduction of up to $4,000 is available for construction tradespeople and apprentices for some temporary relocation costs.
The federal medical expense tax credit has expanded this year to include amounts paid for several fertility treatments including fertility treatments, donor banks and surrogacy costs.
Self-employed people may also be able to claim refundable tax credits up to 25 per cent of expenses to improve ventilation or air quality at your workplace.
People who received government COVID-19 benefits will receive T4A slips explaining how to report the amounts on their taxes. The CRA said people can also request “to have the amount of federal COVID-19 benefits that you repaid in 2022 deducted on your 2020 or 2021 return or split between your 2022 return and the return for the year that you received the benefit.”
Lemay said people should also take note of a new function on the Canada Revenue Agency portal for “uncashed cheques,” after the CRA said last year that it was holding approximately $1.4 billion from 8.9 million cheques to taxpayers that went uncashed over the years. People can request new copies of the cheques to claim the money.
“That's something people should be looking for, because that's a lot of uncashed cheques,” Lemay said.
HOUSE-FLIPPING CHANGES FOR 2023
New tax rules meant to deter house-flipping that came into effect in January are a “big change,” said Lemay. It means income from a house owned and sold for less than 12 months is automatically considered business income, with some exemptions like the death of the homeowner or a marriage breakdown.
Feb. 20 is the earliest day people can file taxes online, and May 1 is the deadline to file.
June 15 is the filing deadline for self-employed people.
Lemay said people should endeavour to file on time because they could miss out on tax elections or face fines after missing the deadline.
“It's very, very important to file your taxes on time,” he said.