Tax filing changes ‘raising the burden’ on taxpayers
Whether you’re an employee or an employer, experts are flagging a few critical tax and filing changes that individuals and businesses should be aware of when preparing their 2023 returns.
Generally, tax returns filed this year for the 2023 tax year will be more complex for many Canadians, and will require more forms and declarations, especially around income from selling or renting homes.
And if a business or a business’s suppliers use forced labour or child labour outside of the country, the Canadian government wants to know—and is using tax returns as a mechanism for requiring companies to report on this issue.
Changes for the 2023 year include new measures aimed at deterring house flipping, and a new national dental plan that is income-tested. Also: Special breaks and programs provided during the pandemic—such as the flat-rate home office expense claim for those working from home—have now expired and are no longer available on tax returns.
A major change this year is new requirements for electronic filings and payments.
“The big theme is everything is going digital,” said Tara Benham, national tax leader for Grant Thornton. “The other thing that we’re finding that people need to know is the number of types of filings that are being triggered—for both individuals and businesses—that are new is significant right now. There’s a whole bunch of new tax filings that are being required of individuals and businesses, and it just raises the burden on the taxpayer.”
The deadline for filing individual tax returns for the 2023 tax year is April 30. The filing deadline for self-employed Canadians is technically June 17, but the Canadian Revenue Agency (CRA) start charging interest on taxes owed beginning May 1. To avoid paying interest, returns should be filed before that date. Incorporated businesses generally must file their tax returns within six months after fiscal year end.
One technical change businesses and individuals need to be aware of is that all payments to CRA of $10,000 or more must now be paid electronically.
“You cannot send a cheque anymore to CRA of more than $10,000,” said H&R Block tax specialist Yannick Lemay.
GST remittances must now be submitted electronically as well.
It is part of a broader push by CRA to encourage digital filing.
“Starting in January [of 2024], almost all GST returns have to be filed electronically,” said Benham.
In the past, only employers that filed more than 50 T4 slips (i.e. employers with more than 50 employees) were required to file returns electronically. That limit has now been reduced to five slips, or five employees for the 2023 tax year. Now, even small businesses that employ six people will need to file their returns in digital form.
As of Jan. 1, 2023, anyone who bought and then sold property within under 365 consecutive days will need to fill out a new schedule, and may end up having to declare the proceeds of that sale as revenue.
“If you don’t meet one of the exceptions, that means 100 per cent of the gain you realized on the sale of that property will be added to your income,” Lemay said. “This is a big change.”
There are some exceptions if there are legitimate reasons for buying and selling a home within one year, such changing jobs.
“But even if you meet one of those exceptions, you’ll need to file the information with the CRA,” Lemay said.
One new category that will show up on T4 slips is Box 45 for the Canadian Dental Care Plan (CDCP), which will provide dental coverage for uninsured Canadians with an adjusted family net income of less than $90,000. Employers must indicate if they provide or offer dental care coverage for their employees.
The new federal dental plan coverage is based on income, so tax returns need to be filed this year to establish whether people qualify for it in subsequent years. The plan is also being phased in.
“They started with seniors, but for most Canadians between 18 and 64, the eligibility date will start in 2025,” Lemay said.
During the COVID-19 pandemic, Ottawa provided a number of temporary tax measures for businesses and individuals that have now ended. An immediate expensing benefit, for example, is no longer available. This benefit allowed businesses to expense up to $1.5 million in depreciation on eligible assets.
The temporary flat rate for employees’ work-from-home office expenses is no longer available. Employees who worked from home last year will need to use the old detailed method to claim home office expenses. The necessary forms—T777 or Form T777S—need to be completed by employee, and employers will need to supply signed T2200 or T2200S forms.
Businesses and high-net-worth Canadians who set up businesses outside of Canada in tax-haven jurisdictions such as the Cayman Islands will now get taxed on the income from those businesses, and will not have access to the deductions or other benefits that are made available to Canadian-domiciled businesses. The Substantive Canadian Controlled Private Corporations (CCPA) rule is intended to repatriate businesses to Canada by eliminating any tax advantage they might derive from being outside of the country.
“So if you were trying to get cute and create a foreign company to avoid this regime, this is sort of bringing all those companies back to Canada,” said Gus Patel, partner at K&P CPAs. “That’s applicable for years starting on or after April 7, 2022, but applicable for a lot of year-ends in 2023.”
The Trudeau government has also added a new provision aimed at deterring child and forced labour through a complex new reporting requirement for larger businesses. Tax filings will be used in part to establish whether companies qualify for the reporting.
The Modern Slavery Act applies to all companies that are publicly listed on a Canadian stock exchange, or private companies with more than $20 million in assets, $40 million in revenue and 250 employees. These companies must now fill out declarations to Public Safety Canada proving that neither forced labour or child labour was used in any part of their supply chains.
“It’s astronomical the work that it’s going to take for the businesses that this applies to [to] actually complete the report and file it,” Benham said.
Determining whether this new act applies to a business is determined through employment-related records, such as the T2.
The Canadian Federation of Independent Business (CFIB) has identified several other noteworthy changes for the 2023 tax year:
Income tax brackets and basic personal exemptions are up by 4.7 per cent (based on inflation);
Maximum insurable earnings for employment insurance are up from $61,500 to $63,200​;
The employee rate rises from 1.63 per cent to 1.66 per cent, and the employer rate is up to 2.32 per cent from 2.28 per cent;​ and
The Lifetime Capital Gains Exemption limit for small businesses rises from $971,190 to $1,016,836, and to $1,016,836 from $1,000,000 for farmers and fishers.
