Hello valued clients & friends!

2022 brought us more COVID, significant changes in markets and housing, war, high inflation and more. We hope for a calmer 2023 overall but one thing we know for sure is that we are happy to have the privilege to be able to help you as it’s ‘Tax Season’ once again, Here is some information on some key tax points.

 

* TAX DROP-OFF DEADLINE - APRIL 21, 2023 *

As we note each year, our office is VERY busy during tax season, and we do not want to let our clients down. To be able to serve everyone seeking our help, we need to receive as many tax returns in March as possible (and less in April) - we are humbly asking for your help to achieve this. We are NOT asking anyone to bring their returns in before they have everything they are waiting on - BUT for those who DO have everything available in March please bring it in ASAP.

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Since we want to be able to assist all our clients in time, we need to take this opportunity to communicate our TAX RETURN DROP OFF DEADLINE OF APRIL 21, 2023. Beat the rush and come earlier if you can, HOWEVER, we can only ensure completion by the May 1, 2023, filing due date for returns we receive by this deadline.

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REST ASSURED - we will always do all we can to serve you, and we will do our very best on any returns that come in after April 21, but we cannot assure their completion by May 1! Thank you for your help and understanding.

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In this letter, we’ll briefly cover some tax considerations. This letter will be also be posted on our social media pages [Facebook page @oandacpa https://www.facebook.com/oandacpa and Instagram Account @ohlmanncpa https://www.instagram.com/ohlmanncpa/] Periodically items of tax interest will be posted there.

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1. Tax Rates & Limits

2023 tax rates, brackets and credits are quite similar for 2023. The upper bracket still sits fixed at 53.5% in B.C for income over $240,716. Details on combined (Federal & Provincial) B.C. rates can be found here:  https://www.taxtips.ca/taxrates/bc.htm. Capital gains inclusion rates did not change in 2023, so only 50% of capital gains will be taxed on tax returns this year (though historically it has varied at times in the past and may still increase or decrease again).

 

2. Residential Property Flipping Rule

Housing matters dominate many of the changes in taxation that the Federal Government has introduced. As mentioned in last year’s tax letter, legislation effective as of January 1, 2023 and will be of significant interest to anyone who is selling residential property (including their personal home) AND has recently sold a residential property (again including their previous personal home).

The tax implications to selling the same residential property (even if it is your home) within

one year are VERY significant in most cases. Please review this important item from last year’s tax letter on our

website under “News” where it is posted or contact us for an emailed copy of that letter.

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3. Increase to the First-Time Home Buyers Tax Credit

Did you purchase your first home in 2022? The First-Time Home Buyers’ Tax Credit has doubled and buyers can now access tax relief of $1,500. The relief is a non-refundable credit, meaning that your tax owing will be lowered by up to $1,500, but if your credit exceeds the tax you actually owe, no amount will be refunded to you. You can claim the credit for the purchase of a qualifying home in 2022 if both of the following apply:

• You (or your spouse or common-law partner) acquired a qualifying home

• You did not live in another home that you (or your spouse or common-law partner) owned in the year of acquisition

  or in any of the four preceding years (first-time home buyer)

 

4. The Underused Housing Tax (UHT)
At the beginning of 2022 the UHT came quietly into effect. As described by the CRA, “The Underused Housing Tax is an annual 1% tax on the ownership of vacant or underused housing in Canada that took effect on January 1, 2022. The tax usually applies to non-resident, non-Canadian owners. In some situations, however, it also applies to Canadian owners.” We know the vast majority of our clients are what would be termed “Excluded Owners” who do not need to file a UHT Return by virtue of being “an individual who is a Canadian citizen or permanent resident.” To that end, we know this tax will affect very few of our clients. However, as noted above, some Canadian owners can be impacted (as they may be “Affected Owners”) who have to file this return (even if they may have an exemption that avoids paying the tax). An

“Affected Owner” situation generally occurs if they are:

o any person - including an individual who is a Canadian citizen or permanent resident - that owns a residential property as a partner of a partnership

▪ While we may complete your Tax Returns, we may not know that this is your ownership form. If you are part of a formal (likely legal) partnership that owns real estate that is either vacant, rented below market, infrequently occupied, or solely occupied on a short term (ie. Air B&B) basis while being owned by a partnership (and you as a partner in that partnership), then you may have to file.

o an individual who is a Canadian citizen or permanent resident and who owns a residential property as a trustee of a trust (other than as a personal representative of a deceased individual- an Executor of an Estate)

▪ This tax is based on legal ownership, not beneficial ownership. Therefore a bare trust situation (where you may be on title for estate planning purposes or to have helped someone obtain financing) may make your ownership to be through a trust and you very well may need to file.

 

In these situations, the owner (even if a Canadian citizen or permanent resident) is an Affected Owner and must file a UHT return.

 

To reiterate, we believe very few will need to file this return and that not many who must file will have to pay any tax:

     

• If you do not own residential real estate, you will not need to file.
• If you are an Excluded Owner, you will not need to file.

o However, if you own residential property, and are a non-citizen/non-resident, or own through a proper partnership, or own as part of a trust (including a bare trust) or have a private corporation that owns- you very well may need to file   (even though you may be exempted from having to pay any tax).

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We need to make extremely clear that filing for the UHT is NOT part of your annual Income Tax Return and it is possible we may be unable to assist you with it. Please do not assume your exposure to this tax is being determined for your situation when we prepare your Tax Return. It is not as we often would simply not know the information to be able to determine your requirement to file (or not). Please also remember, many may meet one of the (numerous) exemptions from paying any tax- but for those who must file, they would be required to file the UHT return by April 30 (including any private corporations, partnerships or trusts) and the penalties for not filing (even if no tax is owed) are extremely significant. If you believe that this may impact you we ask that you PLEASE read the following and try to assess your situation. If you are unsure, please send us an email with the details that make you believe that you may A/ be an “Affected Owner” (who has to file, even if you may have an exemption from paying the tax) and B/ what (if any) exemption you think you may qualify for. Please send these details to us in written form (email or drop off a written letter) as we (unfortunately) cannot answer these questions on phone in calls- the topic is too complicated and time-consuming during Tax Season unfortunately. We also ask that you contact us as early as possible- we are unsure what capacity we will have to assist with these filings (based on the complexity of this matter and the timing of it, as many of the concerning details have really only emerged in recent weeks and we, as with many small practitioners, are overrun with Tax Season). If we can assist, we will, but can only advise that we may be unable to and would like to try to advise anyone of that ASAP given the very punitive penalties.

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Before contacting us, please consult the following to assess your situation as best you can:

https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html#3

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https://static1.squarespace.com/static/5732b331d210b8ea38f6e7bd/t/63e3c20a318f9e55b2a5c9a2/1675870730784/ UHT+-+Quick+Reference+Chart+-+v2.1+-+01.31.2023.pdf

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5. Disability Tax Credit (DTC)

We try to ensure that all our clients who we believe might be eligible for the DTC are aware of it and the application process involved. However, there are certainly situations where you (or a loved one) may qualify, and this has not yet been identified or acted upon. The DTC is a valuable tax credit that is transferrable between spouses for unused amounts, or between family members you support with the necessities of life. We would always take health over a tax credit, but where a disability arises,

this credit can assist. The bar to be qualified is rather high (a Dr. needs to determine the person is “markedly restricted” due to their impairment in being able to manage a basic function of life without assistance (functions include: breathing, eating, dressing, seeing, hearing, going the bathroom, mobility, and a few others). It is often much harder to qualify for than CPP Disability, EI Disability, Provincial Disability, or other Disability Pensions. However, if you suspect you or someone close may qualify, please contact us. Applications may not be fully processed during tax season, but when approved it has the potential to be retroactive and adjustments to claim it in prior years can be made. This year, the government has expanded eligibility, providing some broader access to the DTC. Specifically, the definition of mental functions/impairment is being expanded as well as loosening the restrictions of life-sustaining therapy requirements (and specifically making TYPE 1 Diabetics eligible, but not TYPE 2). We want to make sure all our clients are aware of the substantially updated T2201 Disability Tax Credit Certificate form and the new digital application form for medical practitioners to fill out. If you think you or a loved one you know may now qualify for the DTC, let us help you make application and adjustments to any prior year tax returns impacted by the DTC you may now qualify for (likely following the current Tax Season).

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6. Pensioners' Income Splitting
Pensioners can still split up to 1/2 of qualifying pension income with no expected changes in this option.

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7. Cryptocurrency

Cryptocurrency (CRYPTO) is certainly a hot topic these days, although it remains mysterious to some people (and with respect to taxes, can be quite confusing). CRYPTO is a digital representation of value that is not legal tender. It is a digital asset that can work as a medium of exchange of goods and services. Cryptocurrencies in general take many forms. The best known CRYPTO is Bitcoin. Bitcoin is not controlled by any particular party, and operates independently of any central bank, central authority, or government. In some ways it is useful to think of CRYPTO a bit like gold. Gold has been an asset that holds value over long periods and is used to hedge against market downturns and tumultuous events- an alternative to currency or other investments. CRYPTO is “younger” but is an asset that people also use to store value (or grow in value) and hedge against economic uncertainties.

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A disposition of CRYPTO triggers a reportable and taxable transaction. The proceeds in Canadian dollars at the time of disposition need to be determined for reporting purposes. The exchange of CRYPTO for other goods and services or another form of CRYPTO, rather than for cash, is a barter transaction which involves a disposition of the CRYPTO that also must be reported at fair market value. The value in Canadian dollars at the time of one of these transactions (sale or exchange for goods) can be determined from the exchange broker (if one is used) or an average of midday values across several high-volume exchange brokers. However, taxpayers must track all their purchases and dispositions/exchanges throughout the year and be consistent in the method of pricing/valuation used in their record keeping. The responsibility to do this always rests with the taxpayer. This is really the same as with buying/selling stocks. However, stock prices and transactions are generally presented in monthly statements and annual summaries to a taxpayer from an investment advisor or stockbroker, whereas it is up to the individual to keep all details on purchases/dispositions/exchanges through the year when it comes to CRYPTO.

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As we have noted before, if you have CRYPTO transactions, please track them (all purchases and dispositions/exchanges) and provide them to us when you supply your tax materials to us.

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A significant question for our clients is whether to record these CRYPTO transactions as “business income” or “capital gains.” If the holding and disposition of CRYPTO is a part of a business (or regular pattern of buying and selling that resembles business activity), the profits are fully included as business income. If the activities do not constitute carrying on

a business, the determination of whether the taxpayer realizes ordinary income, or a capital gain will depend on other factors.

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CRA has indicated that they generally treat CRYPTO’s as commodities and that speculators in commodities may report all their gains and losses on such transactions as capital gains or losses, provided they do so consistently from year to year. CRA can always take an alternate view on this emerging area of taxation based on the facts of a taxpayer’s specific situation, but most will likely have CRYPTO transactions treated as capital gains/losses. Last year we posted a longer writeup on our Facebook page which you can still scroll to in the feed.

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8. Electronic Notice of (Re)Assessments (NOA- Notice of Assessment / NORA- Notice of Reassessment)

CRA are continuing the process of switching to electronic NOA’s / NORA’s. Taxpayers who netfile or efile their returns will receive their NOA / NORA electronically through the netfile software or efile service provider and / or through My Account. If the return is filed on paper, the NOA / NORA will be provided through My Account if the taxpayer provided CRA with an email address or by mail if no address was provided. We want to advise that you consider making 2023 the year to prepare for this conversion and establish a My Account, if not already done so. If you have any questions do not hesitate to call us after May for assistance. We are happy to assist as best we can, but unfortunately, the demands of Tax Season will not allow us to help with this during the next few months.

 

9. Work From Home Expenses Credit

As noted last year, the CRA extended to 2022 the working from home deduction and the temporary flat rate deduction. The maximum yearly claim for the flat rate is $500 ($500 in 2021). Those who worked from home for at least 50% of the year for at least four consecutive weeks will be able to claim home office expenses. If working from home because of COVID is new to you for 2022, the CRA has created a simplified form, the T2200S. Bring this form to your employer’s attention for them to sign promptly. We can then work with you on what expenses to tally (per the attached guidance) and provide to us so they can be used as deductions against your income. However, this approach is detailed and there is a temporary $2 a day “Flat Rate” or “Simplified” method that may be a better fit for your situation (easier, without the need to get an employer signed document or retain various receipts). Please note you cannot claim expense amounts that an employer reimbursed you for. See the attached document for more details.

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10. RRSP & Tax Free Savings Account (TFSA) Limits
The maximum RRSP deduction was $29,210 for the 2022 tax year ($30,780 - 2023). Contributions must have been made by March 1, 2023, to deduct in 2022- those made after will be for 2023. The TFSA contributions limit held at $6,000 for 2022 but has increased to $6,500 for 2023. Tip: Ensure you have available RRSP/TFSA contribution room first overcontributions are penalized.

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The CRA released this TAX TIP for everyone to take note of given the numerous scammers out there:

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CONCERNED ABOUT “CRA SCAMS?” How to tell you’ve actually been contacted by a REAL CRA employee.

• TELL the caller that you first want to verify their identity.

• ASK for, and note the caller’s name, phone number and office location (you can also ask for the agent’s ID number,

  though some do not have one).

• CALL the CRA phone number from the official CRA website to confirm that the call was legitimate (Individuals:

  1-800-959-8281, Businesses: 1-800-959-5525): and

• CALL the CRA employee back.

• If you think you’ve encountered a scammer, visit antifraudcentre.ca or call 1-888-495-8501.