2023 Tax Updates: Underused Housing Tax, CPP Increases, and more!

Happy nearly holidays to everyone! It’s not very seasonal but the landscape of Canadian taxes is ever-changing, and 2023 is no exception. There are a few developments that we wanted to draw your attention to – from new rules regarding the Underused Housing Tax to updates on the Canada Pension Plan (CPP), and stringent regulations on short-term rentals, staying informed is crucial.

Starting with the (small) good news…

Underused Housing Tax

Many of our clients who own a second property were irritated to learn that they had to file an Underused House tax return for that property, even if they owed no taxes. (Don’t worry – we’ll have talked already if that was you. We took care of it.)

CRA has listened to the irritated voices and made some changes to the rules on who has to file. Good news – almost all of our clients who had to file this return in 2022 are off the hook for 2023 onwards. You can assume you can ignore this in the future unless we tell you otherwise.

Minor irritants….

Dental benefit – new reporting rule

You may be aware that the government has implemented dental benefits that are intended to widen access to dental care. We think this is a good thing.

When evaluating benefits, the government needs to know if a citizen receives any dental benefits from their employer. So CRA has introduced a new reporting line on the T4 slips that have to be filed for each employee. It basically says if the employer provided no dental benefits; benefits to the employee only; or benefits to the employee and family.

Why do you care? Well, if you’re an employer, there are penalties if you misreport – at least, if you fail to report that you did make these benefits available.

Many clients assume that their payroll app will take care of it (that would be Wagepoint, for most of our clients). We assume that Wagepoint will default to “No benefits”, and somebody will have to manually change it otherwise. But, we’re waiting to hear. We’ll reach out directly when we know.

And two lumps of coal.

CPP increases

You might have read that the government is increasing Canadian Pension Plan benefits (as many Canadians rely on CPP in retirement).

The cap for “regular” CPP contributions has been lifted in line with the growth in earnings – nothing new here, although it’s a bigger jump than usual because of inflation. However, we also have a new, extra, CPP contribution level on top of that. Although a slightly lower contribution rate, employees and employers have to pay CPP contributions at 4% on an extra $4,700 of earned income.

Bottom line: An employee earning $73,200+ will now pay $4,055.50 in CPP contributions a year – as will their employer. (The 2023 max was $3,754.45). If you’re self-employed, you pay both sides (total $8,111).

We broadly support the increase in retirement provision. But, the timing is difficult, with so many people struggling with the cost of living.

Short-term rentals

Many municipalities are starting to restrict or even prohibit short-term rentals (AirBnB and so forth), as an increasing number of properties are tied up this way, and not available for general housing.

The feds are now reinforcing this. In the Fall Economic Statement, the government announced that if your municipality has prohibited short-term rentals, you will not be able to deduct ANY of the costs associated with that property.

Equally nasty – they’ll also eliminate deductions if you don’t comply with any registration or license requirements in your area. (Not yet sure how they’ll monitor this.) But, I’m sure you’ll still have to pay tax on any income – and AirBnB now has to report that to CRA as well.

We’re broadly supportive of matters that address Canada’s housing crisis. But, unfortunately, this will hit many people, who made an investment decision in good faith.

Staying ahead of tax changes can be daunting, but it is crucial for financial planning and compliance. Should you have questions or need assistance navigating these updates, please don’t hesitate to reach out. Our team is ready to provide you with expert advice and peace of mind.