TaxMatters@EY – March 2024

Alan Roth, Toronto

As the 2023 personal income tax return (T1 return) filing deadline quickly approaches, it’s time to reflect on the year that ended and complete your T1 return. That means it’s also time for EY’s annual list of tax filing tips and reminders that may save you time and money.

For tips and reminders on certain tax deductions and credits, see “Spotlight on personal tax deductions and credits that may be claimed on your 2023 T1 return” in this issue.

Personal tax filing tips for 2023 T1 returns

No matter what, file on time: Generally, your T1 return must be filed on or before April 30. If you, or your spouse or common-law partner, are self-employed, your return deadline is June 15, but any taxes owing must be paid by the April 30 deadline. Since June 15 falls on a Saturday in 2024, the 2023 T1 return filing deadline for self-employed taxpayers or their spouses or common-law partners is extended to Monday, June 17, 2024.

Failure to file a T1 return on time can result in penalties and interest charges. Even if you are not able to pay your balance by the deadline, you should still file your T1 return on time to avoid penalties. And if you expect a refund, you should still file on time in case a future change or assessment results in a tax liability for the year. Filing on time also ensures you receive any benefit or credit entitlements (such as the Canada Child Benefit or GST/HST credit) in a timely manner. Remember, if you wait more than three years after the end of the year to file a T1 return claiming a refund, your right to the refund expires and will be subject to the Canada Revenue Agency’s (CRA’s) discretion.¹

Review your 2022 T1 return: Reviewing your 2022 T1 return and notice of assessment or reassessment is a great starting point before you complete and file your return. Determine if you have any refund interest that was received on an overpayment of prior-year taxes that needs to be included in income on your 2023 T1 return, or if you have any carryforward balances that may be used as deductions or credits in your 2023 T1 return.

Carryforward amounts could include unused registered retirement savings plan (RRSP) contributions, unused tuition, education and textbook amounts,² interest on student loans, capital losses or other losses of prior years, resource pool balances and investment tax credits.

Repayment of COVID‑19 benefits: As discussed in TaxMatters@EY, December 2023 Asking better year-end tax planning questions – part 2, if you received COVID‑19-related government benefits in 2020, 2021 or 2022, you were taxed on those benefits in the year of receipt. But if you are required to repay any benefits — that is, it’s determined later you were not eligible for them — you can only claim a deduction in the year of repayment. For certain repayments made prior to 2023, it was possible to claim a deduction in the year the benefit was received, or even to split the deduction between the year of repayment and the year of receipt.

Repayments made in 2023 of federal, provincial or territorial COVID‑19 benefit program amounts are deducted on line 23200 of your 2023 T1 return.

Electronic payments and remittances: If you have a balance of income tax owing upon filing your T1 return, or if you have installment payments to make in 2024, note that as of January 1, 2024, remittances made under the Income Tax Act that are over $10,000 must be made electronically unless the payer or remitter cannot reasonably satisfy this requirement. A penalty of $100 applies for each failure to comply with this new requirement. However, the CRA is providing a grace period before it begins to enforce the application of this penalty. The CRA has stated that “the option to send payments by cheque will remain available to taxpayers for the foreseeable future.” In the meantime, the CRA will be educating taxpayers on electronic payment options and encouraging them to make payments in this manner.

Home office expenses: The CRA has confirmed that the temporary flat rate method for claiming home office expenses that was available during the COVID‑19 pandemic for the 2020, 2021 and 2022 taxation years does not apply to the 2023 taxation year.³ Instead, employees must use the traditional detailed method for claiming specific eligible home office expenses paid in 2023 in the course of earning employment income. In addition, their employer must review and sign a completed Form T2200, Declaration of Conditions of Employment.

The detailed method may be used if you worked from home in 2023 and you were required by your employer to do so. In addition, you must have worked from your workspace at home in the course of earning employment income more than 50% of the time for at least four consecutive weeks in the year, or you must have used the workspace exclusively to earn employment income and for regularly and continually meeting clients, customers or other persons in the ordinary course of your employment duties.

If you only worked from home more than 50% of the time for part of the year — for a period of at least four consecutive weeks but less than the entire year — you can only claim the eligible expenses you paid for that period. You must have paid for the expenses related to your workspace and not have been reimbursed by your employer for the home office expenses incurred. The requirement to work from home does not have to be part of your employment contract and may arise, instead, from a written or verbal agreement. If you have voluntarily entered into a formal telework arrangement with your employer in 2023, you are considered to have been required to work from home.⁴

The types of expenses that may be claimed by employees are limited, although the CRA expanded the list of eligible expenses in 2020 to include a reasonable portion of internet access fees. For details on both eligible and non-eligible expenses, see the CRA’s website page, “Expenses you can claim”.

As noted above, to claim home office expenses, the employee must obtain from their employer a completed and signed Form T2200.⁵ An employee who needs to claim other types of employment expenses in addition to home office expenses (e.g., motor vehicle expenses), must also obtain and complete this form. Form T2200 was recently updated. If you are only using this form to claim home office expenses, only about half of the questions (questions 1 to 6 of 13) noted in Part B, Conditions of employment, must be completed.

The computation of the deductible portion of expenses is calculated on Form T777, Statement of employment expenses, which must be filed with the T1 return.

Tax on split income: The tax on split income rules limit income splitting opportunities with children and certain adult family members for income derived directly or indirectly from a private corporation. Income that is subject to tax on split income is taxed at the highest marginal personal income tax rate and is calculated on Form T1206, Tax on Split Income. For more information on the revised rules, see “Asking better year-end tax planning questions – part 1” in the November 2023 issue of TaxMatters@EY.

Principal residence sale — reporting required, even if all gains are exempt: Capital gains realized on the sale of your residence may be exempt from tax if the residence qualifies as, and is designated as, your principal residence. No tax is owed, for example, if your residence is designated as your principal residence for each year that you owned it. However, you are required to report the disposition of a principal residence on your T1 return, whether the gain is fully sheltered or not.

For 2023 and later years, new tax rules prohibit the principal residence exemption from being claimed on profits that are realized on the disposition of residential real estate in Canada, including a rental property, that was owned for fewer than 365 consecutive days. In this situation, the profits are treated as taxable business income, subject to certain exceptions, including exceptions for dispositions that occurred due to certain life events. For more information on these rules, see “Asking better year-end tax planning questions – part 2” in the December 2023 issue of TaxMatters@EY, and “Focus on Housing” in the February 2023 issue.

The sale of your principal residence must be reported, along with the principal residence designation, on Schedule 3, Capital Gains (or Losses), of your T1 return. In addition, you must also complete Form T2091, Designation of a property as a principal residence by an individual (other than a personal trust). The year of acquisition, proceeds of disposition and a description of the property must be included on the form.

If the gain is fully sheltered, you only need to complete the first page of Form T2091 and no gain needs to be reported on Schedule 3. However, the appropriate box (box 1) still needs to be ticked in the principal residence designation section on page 2 of Schedule 3. If the gain is not fully sheltered, then any capital gain remaining after applying any available principal residence exemption (as calculated on Form T2091) must be reported on Schedule 3.

There is generally a time limit for the CRA to reassess a T1 return. The normal reassessment period for an individual taxpayer generally ends three years from the date the CRA issues its initial notice of assessment. However, if you do not report the sale of your principal residence (or any other disposition of real property) in your T1 return for the year in which the sale occurred, the CRA will be able to reassess your return for the real property disposition beyond the normal reassessment period.

T1135 — remember your foreign reporting: If at any time in the year you own certain specified foreign property with a total cost of more than CDN$100,000, you are required to file Form T1135, Foreign Income Verification Statement. This form may be filed electronically. Failure to report foreign property on the required information return may result in a penalty. Failure to file Form T1135 on time may result in a penalty equal to $25 for each day the failure continues, for a maximum of 100 days ($2,500), or $100, whichever amount is greater. More significant penalties may apply if a person knowingly, or under circumstances amounting to gross negligence, fails to file the form. In addition, if Form T1135 is not filed on time or includes incorrect or incomplete information, the CRA can reassess your T1 return for up to three years beyond the normal reassessment period.

Reportable property generally includes amounts in foreign bank accounts and shares or debts of foreign companies, as well as other property situated outside Canada. It does not include property used in an active business, shares or debt of a foreign affiliate or personal-use property.

Capital losses: Capital losses realized in the year may only be applied against capital gains. Net capital losses may be carried back three years, and losses that cannot be carried back can be carried forward indefinitely.

Where capital losses are incurred on certain shares or debt of a small business corporation, they may qualify as business investment losses that may be claimed against any income in the year, not just capital gains.

Pension income splitting: If you received pension income in 2023 that is eligible for the pension income credit, up to half of this income can be reported on your spouse’s or common-law partner’s T1 return.

You’ll reap the greatest benefits when one member of the couple earns significant pension income while the other has little or no income. In some cases, transferring income from a lower-income pension recipient to a higher-income spouse can carry a tax benefit.⁶

Claim all your deductions and credits: Remember to take advantage of the various family-related tax credits that might apply to you. See the “Spotlight on personal tax deductions and credits that may be claimed on the 2023 T1 return” article in this issue of TaxMatters@EY for details.

…or not: You may be able to increase the tax benefit of certain discretionary deductions if you defer them to a later date:

• Discretionary deductions that may be deferred include RRSP contributions and capital cost allowance.
• Similarly, consider accumulating donations over a few years and claiming them all in one year to increase your benefit from the high-rate donation credit which is available for donations made within the five preceding years.
• Deferring deductions and certain credits makes sense if you are unable to use all applicable non-refundable tax credits in 2023 (and they cannot be transferred), or if you expect to earn higher income in the future.

File a T1 return to obtain certain benefits or credits

File T1 returns for children: Although often unnecessary, in many cases there are benefits to filing T1 returns for children. If your children had part-time jobs during the year or have been paid for various small jobs, such as babysitting, snow removal or lawn care, by filing a T1 return they report earned income and thus establish contribution room for purposes of making RRSP contributions in the future.

Another advantage of filing T1 returns for teenagers is the availability of refundable tax credits. Several provinces offer such credits to low- or no-income individuals. When there is no provincial tax to be reduced, the credit is paid out to the taxpayer. There is also a GST/HST credit available for low- or no-income individuals over age 18.

File a T1 return to obtain the climate action incentive benefit:⁷ This is a tax-free federal benefit with payments made quarterly to eligible individuals 19 years of age or older who are resident in Alberta, Ontario, Manitoba, Saskatchewan, Nova Scotia, Newfoundland and Labrador, Prince Edward Island or New Brunswick on the first day of the payment month and the last day of the previous month. The Maritime provinces were added as of July 1, 2023. Residents of those provinces were eligible to receive benefit payments beginning in July 2023, with the exception of New Brunswick, where eligible residents first received a double payment in October 2023 that covered both the July and October 2023 payments. Eligible individuals in all these provinces must file their 2023 T1 return to receive their payments in respect of the 2023 taxation year.⁸ The amount of the benefit varies according to the province of residence, and additional amounts may be claimed for a cohabiting spouse or common-law partner and for any children under the age of 18.

A supplement equal to 20% of the baseline benefit amount may be claimed by checking the box on page 2 of the T1 return by an eligible individual who resides in a small or rural community.⁹ If the individual is married or living common-law and they and their spouse or partner were both living in the same small or rural community, the individual and their spouse or partner must both tick the box on their respective T1 returns. The payments will be made to the spouse or partner whose T1 return is assessed first. Residents of Prince Edward Island are automatically eligible for the supplement and are, therefore, not required to tick the box on their T1 return.

Tips for business owners

Capital cost allowance claims: If you are a self-employed individual earning unincorporated business, professional or rental income, you are entitled to claim capital cost allowance (CCA) on depreciable capital property if the property is available for use to earn such income. You are required to report your business or professional income and deductible expenses on Form T2125, Statement of Business or Professional Activities. Likewise, if you earn income from a rental property, your rental income and deductible expenses are reported on Form T776, Statement of Real Estate Rentals. CCA is claimed on these forms.

The accelerated investment incentive property rules significantly accelerate CCA for most depreciable capital properties until, and including, 2027. Certain properties such as manufacturing and processing machinery and equipment are eligible for full expensing in the year of acquisition, on a temporary basis (up to and including 2023). The accelerated CCA rules apply to eligible property acquired and available for use after November 20, 2018, subject to certain restrictions. The immediate expensing rules also provide for a temporary expansion of assets eligible for full expensing, up to a maximum of $1.5 million per taxation year. These rules apply to certain designated property that is acquired by a Canadian-resident individual after December 31, 2021 and that becomes available for use before January 1, 2025.

Full expensing of zero-emission vehicles is also available under the CCA rules for eligible vehicles that are purchased and become available for use in a business or profession after March 18, 2019, and before 2024, subject to certain restrictions such as a cap on the cost of passenger vehicles.¹⁰ Accelerated CCA deductions will be available for zero-emission vehicles that become available for use in a business or profession between 2024 and the end of 2027.

For further details on the availability of accelerated CCA claims or the temporary immediate expensing of certain assets as noted above, see “Asking better year-end tax planning questions – part 1” in the November 2023 issue of TaxMatters@EY, as well as EY Tax Alert 2022 Issue No. 30, EY Tax Alert 2021 Issue No. 24, EY Tax Alert 2019 Issue No. 27, and EY Tax Alert 2018 Issue No. 40.

2024 planning: Consider income splitting opportunities such as paying reasonable salaries to a spouse or child for services provided to your business. Or, if your business is operated through a private corporation, consider income splitting corporate earnings with adult family members, bearing in mind such opportunities are now limited due to the revised tax on split income rules. For further details, see “Asking better year-end tax planning questions – part 1” in the November 2023 issue of TaxMatters@EY.

Take advantage of technology

Use software to prepare your T1 return and file electronically. The CRA offers several online services to make managing your taxes faster and easier.

Registering for the CRA’s My Account will allow you to view prior-year T1 returns and assessments, check carryover amounts, view tax slips filed in your name, view account balances and statements of account, file T1 returns, make payments and track the status of your T1 return. It also allows you to register to receive online correspondence from the CRA within My Account, including notices of assessment, benefit notices and slips, and instalment reminders. My Account will also allow you to use the Auto-fill my return service, which pre-populates your T1 return with figures from tax information slips and other information from CRA records if you are using NETFILE-certified software for preparing your T1 return. As of February 2022, you need to provide the CRA with an e-mail address to access My Account.

The MyCRA mobile app allows you to access and view on your mobile device personalized tax information such as your notice of assessment, T1 return status, benefits and credits, and tax-free savings account (TFSA) and RRSP contribution limits, or make payments from your mobile device. The MyBenefits CRA mobile app allows you to view all your benefit and credit information on your mobile device. For further details, see https://www.canada.ca/en/revenue-agency/services/e-services/cra-mobile-apps.html.

Certain tax preparation software products offer the CRA’s Express NOA service, which can provide you with your notice of assessment immediately after you file your T1 return electronically. You must be registered for both My Account and online correspondence with the CRA to use the Express NOA service.

The CRA’s ReFILE service allows you to file adjustments to your T1 return using NETFILE certified tax preparation software, provided your original T1 return is also filed electronically. Adjustments can be made to your 2022, 2021, 2020, or 2019 T1 return. You should receive your notice of assessment on your original T1 return first before using ReFILE to file any adjustments.

The CRA’s Check CRA Processing Times tool provides you with general processing times for T1 returns and other tax-related requests sent to the CRA.

Make time for tax planning

When your T1 return is done, you can step back and reflect on your progress toward your financial goals in the year that just ended. It’s a great primer for a meaningful conversation about tax and estate planning.

Tax season is a time when many focus a little more closely on their financial affairs. So this really is a good time to at least take a new look at the components of your financial and estate plan that could most impact your financial future and those who depend on you. It is also a great time to think of ways to save on your 2024 taxes. For tax planning tips, see our two part series on “Asking better year-end tax planning questions” in the November 2023 and December 2023 issues of TaxMatters@EY.

Get a head start on 2024 savings

Early in 2024 is a great time to think of ways to save on your 2024 taxes. Here are a few tips to help you increase your savings:

• Contribute early to RRSPs or registered education savings plans (RESPs) to increase tax-deferred growth. The 2024 RRSP contribution limit is equal to the lesser of 18% of earned income for 2023 and a maximum amount of $31,560.
• Contribute early to TFSAs to increase tax-free growth. The 2024 TFSA contribution limit is $7,000.
• Contribute early to first home savings accounts (FHSAs) to increase tax-free growth. The 2024 FHSA contribution limit is $8,000. See “Spotlight on personal tax deductions and credits that may be claimed on the 2023 T1 return” below for more information.
• Consider income-splitting opportunities such as the use of spousal RRSPs.¹¹
• If you expect to have substantial tax deductions in 2023, consider requesting CRA authorization to decrease tax withheld from your salary by filing Form T1213, Request to Reduce Tax Deductions at Source.

1. Note that there is a 10-year limit under subsection 164(1.5) of the Income Tax Act for obtaining a refund on a discretionary basis.
2. Although the education and textbook credits were eliminated for 2017 and later years, unused amounts from 2016 and earlier years may still be carried forward and claimed in later years.
3. For more information about the temporary flat rate method, see "Filing your 2022 personal tax returns" in the March 2023 edition of TaxMatters@EY.
4. See also EY Tax Alert 2024 Issue No. 5.
5. The CRA will accept an electronic signature from the employer on Form T2200.
6. For example, the lower-income pension recipient could then claim a greater amount of certain income-tested tax credits such as the medical expense credit or the age credit.
7. This federal benefit was previously available as a refundable tax credit. However, beginning in 2022 in respect of the 2021 taxation year, payments are delivered quarterly through the benefit system, rather than claimed annually as a tax credit.
8. Payments in respect of the 2023 taxation year will be made in April, July and October 2024, and in January 2025.
9. Recent legislative amendments propose to increase this supplement from 10% to 20% of the baseline climate action incentive payment amount, beginning with the April 2024 benefit payment. At the time of writing, this measure was not yet enacted.
10. Limited to $61,000 (plus sales taxes) per vehicle for eligible vehicles acquired on or after January 1, 2023.
11. For more information on this and other income splitting techniques, see “Asking better year-end tax planning questions – part 1” in the November 2023 issue of TaxMatters@EY.

Alan Roth, Toronto

A good way to save tax is by understanding the personal income tax deductions and credits that are available to you. To enhance the benefit of tax deductions and credits, consider these tips and reminders while you’re preparing your 2023 T1 income tax return (T1 return). Although there are several available tax deductions and credits, including provincial and territorial ones, this article will focus on some of the more common federal ones.

New or revised tax deductions for 2023

Deduction for FHSA contributions: The tax-free first home savings account (FHSA) is a new type of registered account that is available to help Canadians save for a down payment for their first home.

Effective April 1, 2023, you may contribute up to $8,000 each year to an FHSA, subject to a lifetime limit of $40,000. Contributions to an FHSA are tax deductible, and income earned in the account is not subject to tax. Qualifying withdrawals made to purchase a first home are non-taxable. Excess contributions are subject to a 1% per month penalty tax until they are either withdrawn from the account or absorbed by new contribution room becoming available.

New T1 Schedule 15, FHSA contributions, transfers and activities, is used to calculate your FHSA deduction and unused FHSA contributions available to deduct in future years. Deductible FHSA contributions may be claimed on line 20805 of the T1 return, while non-qualifying (taxable) withdrawals are included in income on line 12905.

For more information about FHSAs, see “Asking better year-end tax planning questions – part 2” in the December 2023 edition of TaxMatters@EY, and Chapter 9, Families, in Managing your Personal Taxes 2023-24.

Tool expense deduction for tradespeople: This deduction, available to a tradesperson for the purchase of eligible new tools, increased from $500 to $1,000, effective for 2023 and later years. This increased deduction allows a tradesperson to claim up to $1,000 of the amount by which the total cost of eligible new tools acquired in a taxation year as a condition of employment exceeds the amount of the Canada employment credit ($1,368 in 2023). The total amount deducted may not exceed the total employment income earned as a tradesperson and any apprenticeship grants received to acquire the tools and included in income.

The calculation of the separate deduction for the purchase of tools by eligible apprentice vehicle mechanics was also amended to equal the cost in excess of the greater of $1,000 (increased from $500) plus the Canada employment credit, and 5% of the employee's total income for the year from being an eligible apprentice mechanic.

New tax credit for 2023

Multigenerational home renovation tax credit: The multigenerational home renovation tax credit (MHRTC) is a new 15% refundable credit for 2023 and later years that is available on up to $50,000 of qualifying renovation or alteration expenditures to create a secondary unit to enable a qualifying individual — generally, a senior or an adult family member with a disability — to live with a qualifying relation (generally, a close relative).

New T1 Schedule 12, Multigenerational home renovation tax credit, is used to calculate your total qualifying renovation or alteration expenditures and the total MHRTC. The MHRTC may be claimed on line 45355 of the T1 return.

For more information on the MHRTC, see “Asking better year-end tax planning questions – part 2” in the December 2023 edition of TaxMatters@EY, and “What is the multigenerational home renovation tax credit?” in the September 2022 issue.

Other common tax deductions

Child care expenses: If you paid qualifying child care expenses for an eligible child to allow you to work or attend certain educational programs, you may be able to claim a deduction. The limits are generally $8,000 for each child under 7 years of age and $5,000 for each child between 7 and 16 years of age. A higher amount may be claimed for a child who has a disability. The total deduction claimed for all children cannot exceed two-thirds of your earned income. Earned income for this purpose includes employment income or net self-employment income (either alone or as an active partner) and certain financial assistance payments.