Canada Emergency Business Account (“CEBA”) Loan

The CEBA program enabled small businesses to receive interest-free loans for up to $60,000 to assist with the financial hardships imposed by the COVID – 19 Pandemic.

Up to $20,000 if the original amount borrowed was $60,000 and up to $10,000 if the original amount borrowed was $40,000 of the loan will be forgiven for eligible loan holders if the balance of the loan is repaid by the extended deadline of January 18, 2024 (the original deadline was December 31, 2023).

If the loan holder has submitted a refinancing loan application by January 18, 2024, they may still be eligible for the partial loan forgiveness if their remaining CEBA loan is repaid by March 28, 2024, assuming certain conditions are met.

Immediate Expensing Rules

Under the temporary “Immediate Expensing” rules, eligible persons or partnerships can take a deduction of 100% of the cost of the eligible property as Capital Cost Allowance in the year in which the property becomes available for use, for tax purposes.

The deduction is limited to $1,500,000 per tax year and this limit may have to be shared amongst other “associated” corporations if applicable. This expenditure limit cannot be carried forward if it is unused in the current taxation year.

For individuals and partnerships (where all partners are individuals), the property must be available for use after January 1, 2022, and before December 31, 2024.

For corporations and other partnerships (other than partnerships where all partners are individuals), property must be purchased and available for use after April 19, 2021, and before January 1, 2024.

Trust Reporting

The CRA has implemented new reporting requirements for trusts which are effective for the December 31, 2023 taxation year.

Most trusts, with some exclusions, must now file a T3 Trust Income Tax return.   These new requirements also apply to “bare” trust arrangements where a trustee holds legal title to a property as a bare trustee for the benefit of a separate beneficial owner.

Trusts that have been in existence for less than three months at the end of the year, mutual funds trusts, registered charity trusts, and graduated rate estates are some of the trusts that are excluded from this new requirement.

Trust account numbers need to be set up with the Canada Revenue Agency for any trusts that not have not filed returns or received trust account numbers from the Canada Revenue Agency in prior years.

The T3 return now also has a new required form that must be completed with information on all trustees, settlors, and beneficiaries [1]. Information includes the full name, address, country of residence and the Business Number or Social Insurance Number as applicable.

Proposed Changes to the Alternative Minimum Tax (“AMT”) Regime

The AMT imposes a minimum amount of income tax on taxpayers who claim certain tax deductions, exemptions, or credits to reduce their taxes. AMT only applies to individuals and certain trusts; it does not apply to corporations. Under the AMT regime, there is a separate tax calculation that allows for fewer deductions, exemptions, and credits than the calculation of regular income tax. If the amount of tax calculated under the AMT regime is greater than the amount of regular income tax, the difference is payable as AMT for the year. The AMT paid can be recovered over the following seven years if there is sufficient income taxable at the full rate in those years.

The 2023 federal budget proposed [2] significant changes to the AMT regime.

The following is a summary of some of the significant[3] proposed changes:

Residential Property Flipping Rule

The new residential property flipping rule applies to the sale of “flipped” residential property that occurs on or after January 1, 2023.  Prior to 2023, gains on sales of residential property were treated either as fully taxable business income or as a capital gain, which is 50% taxable. If the property qualified as a principal residence, the gain could have been reduced or eliminated by claiming the principal residence exemption.

The new residential property flipping rule deems gains from the sale of a “flipped property” as business income taxable at 100% in all circumstances, unless one of the exceptions applies. The principal residence exemption cannot be claimed to reduce or eliminate any gains from the sale of a “flipped property”.

A “flipped property” is defined as a housing unit that:

• Is located in Canada.
• Would not otherwise be inventory of the taxpayer.
• Was owned by the taxpayer for less than 365 consecutive days prior to the sale.

The definition of “flipped property” also include a right to acquire a housing unit located in Canada. As such, the rule also applies to any gains arising from assignment sales.

There are exceptions to the residential property flipping rule.  Some of the more significant[5] exceptions are if the sale occurs as a result of any of the following scenarios:

• Death of the taxpayer or a person related to the taxpayer.
• One or more related person of the taxpayer becoming a member of the taxpayer’s household or the taxpayer becoming a member of the household of a related person.
• The breakdown of the marriage or common-law partnership of the taxpayer if certain conditions are met.
• The taxpayer or a related person suffering from a serious illness or disability.
• An eligible relocation of the taxpayer or the taxpayer’s spouse or common-law partner.
• An involuntary termination of the employment of the taxpayer or the taxpayer’s spouse or common-law partner.

Failure to report a gain on sale of a flipping property as business income may result in a gross negligence penalty of 50% of the additional tax owing plus interest.

Enhanced Rental Rebate for Purpose Built Rental Housing

On September 14^th, 2023, the Government of Canada released draft legislation aimed at increasing the supply of purpose-built residential rental units by eliminating the Federal portion of the GST/HST on multi-unit purpose-built rental housing. Under the proposed legislation, this would be accomplished by enhancing the existing GST/HST rebate which is currently available to anyone who purchases or builds a rental unit.

Under current legislation, when a builder builds a multi-unit rental property, they can claim GST/HST input tax credits for any GST/HST paid on the materials and labour costs incurred in building the property, but the builder must then self-assess and remit GST/HST on the fair market value of the property.  In Ontario, GST/HST must be self-assessed at a rate of 13%; 5% of which is the Federal portion, with the remaining 8% attributable to the Ontario Provincial portion.  To provide some relief, the Federal Government allows for a rebate of 36% of the 5% portion of GST/HST paid (or 1.8% of the total value of the property). At a high level, this rebate is phased out based on the per-unit value of each unit in the property, beginning at units with a fair market value of $350,000 reducing the rebate to zero once the value of the unit reaches $450,000.

Under the proposed legislation, the rebate of the 5% Federal portion of GST/HST will be increased from 36% to 100% and there will no longer be any phasing out of the rebate based on the fair market value of each unit.  This allows for a full rebate of the federal portion of GST/HST if certain conditions are met.

In order to qualify for the enhanced rebate, the multi-unit residential rental property must meet the following criteria (in addition to the criteria needed for the regular rebate:

• The building must have at least four private apartment units (i.e. a unit with a private kitchen, bathroom, and living spaces), or at least 10 private rooms or suites (e.g. a 10-unit residence for students, seniors or people with disabilities);
• 90% of the residential units in the building are designated for long-term rental; and
• Construction on the complex must begin on or after September 14^th, 2023, and before December 31^st, 2030, and construction must be completed by December 31^st, 2035.

Ontario has stated that they intend to match the Federal changes for the Ontario portion of the self-assessed tax.

These changes will not impact builders of rental housing that have less than 4 separate units.  The normal self-assessment and rebate rules still apply to these properties.

Changes to Various Inflation-Adjusted Amounts for Tax

In Canada, the personal income tax brackets as well as various other amounts contained in the Canadian Income Tax Act, and other Government programs are indexed to inflation. As such, at the end of each year, the Canada Revenue Agency (“CRA”) releases revised, inflation-adjusted numbers which are applicable to the following year. In 2023 inflation remained high and as a result, the CRA announced that the indexation rate to be used for 2024 would be 4.7% (down from 6.3% last year).  Below is a summary of some of the inflation-adjusted amounts for 2024:

Federal Income Tax Brackets:[6]

• Taxable income above which the 20.5% bracket begins – $55,867 (up from $53,359 for 2023)
• Taxable income above which the 26% bracket begins – $111,733 (up from $106,717 for 2023)
• Taxable income above which the 29% bracket begins – $173,205 (up from $165,430 for 2023)
• Taxable income above which the 33% bracket begins – $246,752 (up from $235,675 for 2023)

Other Relevant Amounts:

• The RRSP dollar amount is $31,560 for 2024 (up from $30,780 in 2023) [7]
• The Annual TFSA dollar limit is $7,000 for 2024 (up from $6,500 in 2023)
• The Lifetime Capital Gains Exemption limit is $1,016,836 (up from $971,190 in 2023)
• OAS repayment threshold is $90,997 for 2024 (up from $86,812 in 2023)
• The Basic Personal Amount is $15,705 for incomes less than $173,205 and is gradually reduced to $14,156 as net incomes reach $246,752.
• Maximum CPP Contributions are $3,867.50 for 2024 (up from $3,754.45 in 2023).  There is also an additional amount of CPP owed on wages between $68,500 and $73,200
• Maximum EI Contributions are $1,049.12 and $1,468.77 for employees and employers respectively 2024 (up from $1,002.45 and $1,403.43 in 2023)

New Reporting Requirements for T4 Slip – Statement of Remuneration Paid, and T4A Slip – Statement of Pension, Retirement, Annuity and Other Income

The CRA has recently added new reporting requirements to the T4 and T4A slips to facilitate the administration of the Canadian Dental Care Plan. Issuers of T4 slips (e.g., employers) or T4A slips (e.g., pension plan administrators) are now required to indicate in Box 45 of the T4 slips, or Box 15 of the T4A slips, whether the payee or any of their family members was eligible, on December 31 of that year, to access any dental care insurance, or coverage of dental services of any kind, in connection with their current or former employment. There are five codes that correspond with various types of coverages of the dental care/ service.

The new reporting requirements apply to the 2023 and subsequent calendar years, subject to certain administrative relief policies that are in effect for 2023 only. T4/ T4A issuers shall not use Box 45/ Box 15 when filing these slips electronically before January 2024. In addition, it is not mandatory to fill out Box 45/ Box 15 of the 2023 T4/ T4A slip if the issuer has made reasonable efforts and determined that code 1 is otherwise applicable (code 1 = not eligible to access any dental care insurance/coverage or services of any kind).

Non-compliance may result in financial penalties and/ or the filed T4/ T4A slip being rejected by the CRA.

An Update on the Underused Housing Tax (“UHT”) Regime

The CRA has continued to extend the deadlines in respect of 2022 UHT obligations. “Affected owners” will have until April 30, 2024 to file the 2022 UHT return, and pay the applicable 2022 UHT, without being charged penalties or interest.

In addition, the 2023 Fall Economic Statement has proposed various legislative amendments to the existing UHT regime, notably including, but not limited to, the following:

• Certain persons that are affected owners for 2022, will no longer be required to file the UHT return for the 2023 and subsequent calendar years. This will apply to, for instance, a specified Canadian corporation, a trustee of a specified Canadian trust and a partner of a specified Canadian partnership (these are essentially corporations, trusts, or partnerships that are comprised of shareholders, beneficiaries, or partners that are Canadian Citizens/Permanent Residents of Canada);

• The non-filing penalty per residential property will be reduced from $5,000 to $1,000 for a non-compliant individual owner, and from $10,000 to $2,000 for a non-compliant owner other than an individual. This will apply retroactively to January 1, 2022;

• Effective December 31, 2022, certain residential condominium units will be excluded from the definition of “residential property”, to which the UHT filing and/ or taxation obligations may otherwise apply;

• Starting from the 2023 calendar year, the ownership of certain residential properties used primarily to provide a place of residence or lodging for employees/ contractors will be exempt from UHT;  and

• In the case of an owner of a residential property in multiple capacities, each ownership capacity shall be examined separately and independently of one another in order to determine the UHT obligations of the owner. This will be effective retroactively to January 1, 2022.

Footnotes

[1] As well as certain other individuals in some scenarios.

[2] As at the date of this publication, the changes remain proposed and have not been approved as law.

[3] Note that this summary does not include all of the proposed changes, but rather the ones which we have deemed to be most relevant to our client base.

[4] This represents the Federal rate only. There also may be a Provincial AMT applicable. Rates vary by province

[5] Note that this summary does not include all of the exceptions rather the ones which have deemed to be most relevant to our client base.

[6] The Provincial income tax brackets are different and vary by province

[7] To a maximum of 18% of “earned income”