Introduction:

Filing season is almost approaching, and with it comes the possibility of taking advantage of new credits and deductions made available for the 2022 tax year. The last year has witnessed economic turbulence due to COVID-19 developments and rising inflation.

This year’s major tax brackets in Canada include new federal tax rates, a larger Basic Personal Amount, and COVID benefit payback. There are, thus, a number of adjustments that Canadian taxpayers will need to be aware of when submitting tax returns beginning in 2023.

But don’t worry! We will help you. Here’s what you need to know about the taxation changes in 2023 and how they can affect you!

1. New Anti-Flipping Residential Real Estate Regulations

Beginning January 1, 2023, new anti-flipping laws apply to residential property dispositions held for less than a year. According to these regulations, a taxpayer is regarded to be carrying on a business in respect of the sale of such property. Furthermore, the transaction is deemed for income than capital. [1] 

The new anti-flipping provisions do not apply if you sell the property due to one or more of the following events:

• The taxpayer’s marriage or common-law relationship has broken down if the taxpayer has been living apart from their spouse/common-law partner for minimum of 90 days previous to the disposal;
• A threat to the taxpayer’s or a related person’s safety;
• The taxpayer or a related person is suffering from severe illness/disability;
• Eligible relocation of the taxpayer or the taxpayer’s spouse/common-law partner;
• Involuntary termination of the taxpayer’s or the taxpayer’s spouse or common-law partner’s employment.

2. New Mandatory Disclosure Rules Proposed

The earlier version of the Mandatory Disclosure Rules required taxpayers and advisers to declare a transaction principally conducted to get a tax credits advantage if the transaction had two of the three hallmarks:

• Contingency fees
• Personal protection
• Contractual protection

For the transaction to be reportable, only one of the three criteria must be satisfied under the New Mandatory Disclosure Rules.

Uncertain tax Treatments

The federal government proposes requiring some business taxpayers to submit some uncertain tax treatments to the CRA if the following criteria are met:

• The company must submit a Canada tax return for the taxation year. That is, the company is either a Canadian resident or a non-resident having a taxable presence in Canada.
• After the fiscal year corresponding with the taxation year (or the last financial year ending before the end of the taxation year), the firm has at least CA$ 50 million in assets. This criterion will be applicable to each firm.
• Financial statements produced in accordance with International Financial Reporting Standards (IFRS) or other country-specific GAAP applicable for domestic public corporations have been audited and made available to the public by the company or a consolidated group of which the company is a part (e.g., U.S. GAAP).
• The audited financial statements reflect the corporation’s taxation year Canadian income tax uncertainty.

When the Act that implements the New Mandatory Disclosure Rules for certain Canadian tax transactions gets the Royal Assent, the rules will apply.

3. Income Restrictions for Old Age Security

Old Age Security, or OAS, is a government program that gives older Canadians a monthly stipend to support them through their retirement. On the other hand, seniors who earn too much money may request to repay part of their OAS.

The following are the new thresholds for the tax year:

• For those 65 to 74 years old from January through March of 2023, the maximum monthly OAS payment is CA$ 687.56.
• For the payment period of January 2023 through March 2023, the highest amount of Old Age Security (OAS) is CA$ 756.32, an increase of 10% over the previous maximum amount of CA$ 687.56.

If your income exceeds the minimum threshold, you will have to refund 15% of your excess income up to the full amount of OAS received. Your OAS benefit will be eliminated if your income exceeds the maximum limit.

4. Increasing The Taxable Capital Threshold At Which The Small Business Deduction Is Phased

Previously, the small business deduction of a Canadian Controlled Private Corporation (CCPC) lowers on a straight-line basis if the CCPC and any affiliated businesses’ aggregate taxable capital employed in Canada was between CA$ 10 million – CA$ 15 million.

Thus, if the CCPC and related businesses had CA$ 15 million or more in taxable capital employed in Canada, the CCPC was ineligible for any small business deduction.

Bill C-32, which gained Royal Assent on December 15, 2022, increased the maximum amount of taxable capital used in Canada at which the small business deduction is phased. The increase is from CA$ 15 million to CA$ 50 million for taxation years beginning on or after April 7, 2022.

5. Proposed Changes to the GAAR

The Federal Government promised to modernize Canada’s anti-avoidance legislation in the 2020 Fall Economic Statement. Following that, the government issued a Consultation Paper outlining proposed regulations changes, followed by a public consultation from 9 August –30 September 2022.

The following adjustments were recommended in the Consultation Paper:

• Changing the definition of “tax advantages” to include tax features.
• Providing an interpretative rule to define what is and is not a “true” purpose (a transaction or series of transactions that results in a first-time home buyer tax credit Canada benefit is not subject to the GAAR if it may reasonably be considered to have been undertaken or arranged for bona fide purposes than to obtain the tax benefit).
• Extending the meaning of “transaction” to include the option to choose.

In 2023, the Federal Government will introduce legislation amending the GAAR.

Bottom Line

The Canada Revenue Agency compels most Canadians to submit their taxes every year. There are a few exceptions, but if you earn money in Canada (even if you reside in another country), you will almost certainly have to pay Canadian taxes.

We are optimistic that after reading this blog, you have a fair understanding of how the mentioned changes in taxation can impact you and your businesses. However, if you are unsure, talking to experts like GJM & Co. can be helpful. Our expert accountants and tax professionals will not only guide you through the new taxation policies but also help with tax filings.

Should you have any queries or need consultation, Schedule a Call today or write to us at info@gjmco.in