Toronto’s New Vacant Home Tax

Ensuring housing affordability has become a critical issue of concern for Federal, Provincial and Municipal governments in Canada. In an effort to address this issue, the City of Toronto implemented a new Vacant Home Tax. Under this new tax, Toronto homeowners with vacant properties will have to pay an additional Vacant Home Tax on their home, effective January 1, 2022.

This new policy is the result of Consultation on the Underused Housing Tax with interested members of the public from August 2021 to December 2021, alongside the Department of Finance, and was announced in Budget 2021 by the Government of Canada. During the December 2021 meeting, City Council amended the City of Toronto Municipal Code and added Chapter 778, Taxation, Vacant Home Tax.

What is the Vacant Home Tax?

The Vacant Home Tax (VHT) is intended to incentivize owners to rent or sell their empty homes, and thereby increase the supply of affordable housing in Toronto. It will be levied at 1% of the property's current value assessment for the year the home is vacant. The tax is based on the property's occupancy status for the previous year. For example, if a vacant home is assessed at $1,200,000 in 2022, the owner will be subject to a $12,000 annual tax that will become payable in 2023. The City will use the funds from the Vacant Home Tax to fund initiatives that will help alleviate the housing shortage in Toronto, such as providing additional affordable housing.

What is considered a vacant home?

A vacant home is defined as a residential property that has been unoccupied and not used as a principal residence for more than six months in the previous calendar year. If a home is left unoccupied for more than six months after January 1, 2022, the owner will be subject to the vacant home tax the following year. The Vacant Home Tax also applies to non-residents and non-Canadian property or real estate owners. Owners who rent out their vacant homes are exempt from this tax. This provides an incentive for owners to find tenants and helps ensure more homes are available for people in need.

What are the exemptions for the Vacant Home Tax?

There are a few eligible exemptions for the Vacant Home Tax, which must be noted on the declaration and supported by documentation. If you meet the following criteria, you will be exempt from Vacant Home Tax:

Property was vacant for six months or more in the previous year due to the death of an owner.
Property is unoccupied because its undergoing renovations or repairs and all the following conditions have been met.
1. normal occupation is prevented for at least six months of the year
2. all requisite permits have been issued for the repairs and renovations
3. the City's Chief Building Official believes the work is being carried out “without unnecessary delay”.
Property was vacant due to the principal resident residing in hospital, long term care home, etc. for at least six months of the year. This exemption can be claimed for up to two consecutive taxation years.
Property was vacant for six months or more due to transfer of legal ownership to an arm’s length buyer.
Property is vacant because the property is required for occupation for employment purposes for at least six months of the year, by its owner who has a principal residence outside the Greater Toronto Area.
Property was vacant due to a court order which prohibits occupancy for at least six months of the taxation year.

How to make the declaration?

To ensure compliance with the Vacant Home Tax, all residential property owners must make a declaration of occupancy status. The City of Toronto has set up an online declaration portal that will open in mid-December 2022. The deadline to submit the declaration is February 2023 for the 2022 taxation year. Owners of residential properties that have remained unoccupied for six consecutive months or more during the taxation year, and without an eligible exemption, will be required to pay the Vacant Home Tax. A Vacant Home Tax Notice will be issued to the property owners in March/April, with payment due on May 1.

If the owner fails to make the annual declaration and/or provide supporting documentation by the deadline, the residential properties will be deemed vacant. A fine of $250 to $10,000 may be imposed for failure to declare or making a false declaration. In addition, any overdue Vacant Home Tax amount will be subject to interest until the amount is paid.

It is essential that all property owners in Toronto comply with the Vacant Home Tax and make their declarations on time. This tax will help ensure that more homes are available for people in need, as well as generate revenue to fund important initiatives such as providing additional affordable housing. If you have any questions or concerns about the new Vacant Home Tax, and eligible exemptions, please contact us. We are here to help!

Disclaimer

The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting/tax professionals. NBG Chartered Professional Accountant Professional Corporation will not be held liable for any problems that arise from the usage of the information provided on this page.

Year-End Tax Planning Tips - 2022

While it is important to take care of tax-planning throughout the year, a strategic approach at the end of the year can help you make sure that you’re making the most of your tax situation and taking advantage of any year end tax planning opportunities available before the December 31st deadline. As we enter the final weeks of 2022, here are some tips to consider for your year end tax planning.

Personal Tax Tips

1) Accrued Capital Losses/Capital Gains

If you have investments that have decreased in value over the course of the year, ensure you trigger the disposition to create a capital loss before year end. This loss can then be used to offset any capital gains realized during the same calendar year, carried back three years or carried forward indefinitely to reduce capital gains in future years. In order for the loss to be available for 2022, ensure that the transaction settles before December 31st, which means that the last trade date should be no later than December 28, 2022.

If you purchased investments in a foreign currency, be mindful of the impact of the currency fluctuations on your capital gain or loss. In certain cases, the gain or loss may be larger or smaller than you anticipated.

Similarly, if you have accrued capital gains on your investments, consider delaying the sale until 2023 and thus deferring the capital gain. This could be advantageous if you anticipate your tax rate to be lower in 2023.

2) Set up a prescribed rate loan

A prescribed rate loan is a tax-effective strategy for transferring income from a person in a higher tax bracket to one in a lower tax bracket, such as your spouse, common-law partner, children or even a family trust. This type of loan involves lending funds to the recipient and charging interest at the rate of interest that is set every quarter by the Canada Revenue Agency (“CRA”), currently 3%. This is an excellent way for anyone with investment funds earning more than 3% and whose spouse is in a lower tax bracket than them to save tax.

Due to the latest interest rate increases, the prescribed interest rate will increase from 3% to 4% on January 1, 2023. As a result, if a loan agreement is entered into before December 31, 2022, the lower 3% prescribed interest rate will apply as long as the loan remains in good standing. To avoid attribution of income, interest on the loan must be paid each year at the prescribed rate by January 30th of the following year, and interest payment should be recorded.

If you want to read an in-depth analysis of how prescribed rate loans work, see our article, "Benefits of Using Prescribed Rate Loans to Save Tax".

3) Registered Retirement Savings Plan (RRSP) Contributions

Contributing to a RRSP can help reduce your taxable income, as well as provide tax-sheltered growth for the future. Contributions made by December 31st are eligible for deductions on your 2022 tax return. You also have the option to defer your RRSP contribution deduction if you expect to be in a higher tax bracket in the near future.

It is important to note that the deadline for making RRSP contributions for the 2022 tax year is March 1, 2023 and your maximum 2022 deduction is limited to 18% of income earned in 2021, to a maximum of $29,210 less pension adjustment.

If you turned 71 in 2022, you must make your final RRSP contribution by December 31, 2022, before your RRSP is converted into a RRIF or registered annuity. If you still have unused RRSP contribution room even after making the contribution to your RRSP in 2022, you have the option to use your contribution room after 2022 to make contributions to a spousal RRSP until the end of the year your spouse or partner turns 71. This will not work if your spouse has already turned 71.

4) Make Registered Education Savings Plan (RESP) Contributions

The deadline for making RESP contributions for the 2022 tax year is December 31, 2022. Contributions made before December 31st are eligible for the Canada Education Savings Grant (CESG). The CESG is an additional grant from the Government of Canada, equal to 20% of annual RESP contributions of $2,500 or maximum annual grant of $500 per child.

Hence, before December 31, take a few minutes to check your RESPs to make sure that you are on track to receiving the full CESG for the year. If not, consider making a catch-up contribution to ensure that you don't miss out on any free grant money. For more information on how you can maximize your RESPs, read our article, "How to Maximize your RESP?".

5) Pay tax-deductible expenses in 2022

Plan ahead to pay any deductible expenses before December 31st in order to reduce your taxable income for 2022 and claim these deductions and credits on your return. These include but are not limited to the following:

Charitable donations to registered charities;
Childcare expenses;
Medical expenses;
Union and professional membership dues;
Investment management fees and interest;
Deductible legal fees;
Moving costs;
Tuition Fees and interest on student loans.

6) Plan your move to a different province or territory

For tax purposes, individuals are taxed on their income based on where they live on December 31st. If you are planning to move between provinces, consider:

Moving before year-end if you’re going to a province or territory with a lower tax rate.
Waiting until 2023 if you are moving to a province with a higher tax rate.

Note that if you moved to be closer to work, your moving expenses may be deductible.

7) Pay your tax installments

If you are an individual and are required to make quarterly installments, make sure to review your 2022 tax liability and make your final tax installment on or before December 15th to avoid late interest charges.

If you have missed an earlier payment and need to catch up, make sure you do so before December 15th as the CRA will apply a late interest charge on any unpaid tax installments.

8) Review your income tax deductions at source

If you anticipate your taxable income to be lower in 2023 or will have excess tax deductions or non-refundable tax credits, you can request your employer to deduct less by filing federal Form 1213.

9) Income timing

You may want to consider deferring certain employment income from 2022, to 2023 if you anticipate your taxable earnings to be lower in 2023. This could include deferring bonus or commission income (if allowed by your employer).

Business Tax Tips

1) Pay your salaries and/or dividends

As a business owner, you should consider paying reasonable salaries to yourself and family members who work in your business before December 31, 2022. This will help to reduce your corporate income tax bill while providing your family members and yourself RRSP contribution room for 2022.

Before paying dividends to any other family members, speak with your tax advisor to review the possible application of the Tax on Split Income (TOSI) rules.

2) Declare your bonuses

Consider declaring your year-end bonuses before December 31st to take advantage of the corporate tax deduction in 2022. A bonus is generally deductible to the corporation in the year it is accrued, if it is paid within 179 days of the corporation's year-end and appropriate source deductions and payroll taxes are remitted on time following payment of the remuneration.

Also, it is generally taxable to the individual as employment income when it is received. Hence, since you will receive the bonus in 2023, the taxes on that bonus will be deferred by a year.

3) Repay your shareholder loans

If you have a shareholder loan from your corporation, ensure that you pay back the loan within one year following the end of the taxation year of the corporation in which the loan was made to avoid having a personal tax income inclusion. There are exceptions to these rules. For more information on the tax rules with respect to shareholder loans, read our article, "Shareholder Loans and Their Tax Implications".

4) Purchase capital assets for your business before December 31st

If your business needs new capital equipment, consider making those purchases before December 31st, so you can claim depreciation on the asset for tax purposes in 2022, provided that the assets are available for use in 2022.

5) Pay your final corporate tax balances

The deadline to pay your final corporate income tax balances is two months after year end for most corporations (three months for certain CCPCs). Please ensure you are caught up on your payments to avoid non-deductible interest charges.

It is important to review your strategies from year-to-year in order to keep up with changing regulations and understand how they may impact your specific tax situation. Be sure to consult a qualified tax professional before making any major financial decisions in order to ensure that you are getting the best advice tailored to your personal situation.

Disclaimer

The New Luxury Tax in Effect Now

As part of the 2021 Federal Budget, the Government of Canada proposed the introduction of a tax on the sale of certain new luxury cars, aircraft, and boats. On September 1, 2022, the Select Luxury Items Tax Act (the Luxury Tax Act), a part of Bill C-19, came into force.

What items are subject to Luxury Tax?

The Luxury Tax Act now imposes a new "Luxury Tax" on the sale, lease or import of certain vehicles and aircraft worth more than $100,000, as well as certain vessels or boats that are worth more than $250,000. The items subject to tax are discussed in more detail below:

Vehicles

Most passenger motor vehicles manufactured after 2018 that are equipped to accommodate 10 or fewer passengers and have a gross vehicle weight rating of 3,856 kilograms or less. Exceptions apply to certain recreational vehicles, emergency vehicles, military vehicles, and any other vehicle with a seating capacity for more than 10 individuals

Aircraft

Any aeroplane, helicopter, or glider manufactured after 2018 that has a maximum capacity of 40 passengers. Exemptions include commercial aircraft, military aircraft, and cargo aircraft.

Vessels

Any boat designed for leisure, recreation, or sporting activities manufactured after 2018 (i.e yachts, sailboats, deck boats, waterskiing boats etc.) Exemptions are available for certain types of boats (including cruise ships and boats equipped for commercial use).

How is the Luxury Tax calculated?

The Luxury Tax is generally calculated using the taxable amount of the subject items. This means that luxury tax is applicable on the following when retail value is over:

$100,000 for vehicles
$100,000 for aircraft
$250,000 for vessels

*Please note that retail value includes the fair market value of the item, freight fees, and any amount paid for the improvements (excluding accessibility modifications). When the item is imported, the retail value includes the sum of any taxes, duties, or fees (other than GST/HST) levied on importation or as assessed by the seller (for example environmental levies).

The Luxury Tax is calculated at the lesser of:

10 percent of the full retail value of the item; and
20 percent of the amount exceeding the set threshold (($100,000 for vehicles and aircraft, and $250,000 for vessels).

For purposes of calculating GST/HST, Luxury Tax is added to the cost of the item. As a result, the Luxury Tax is subject to GST/HST.

Let's look at an example:

An Ontario resident is purchasing a $155,000 vehicle. The taxpayer has incurred $8,000 in delivery charges and improvements. The applicable Luxury Tax is calculated as:

Luxury Item (Vehicle)	Retail value	Luxury Tax
Retail price of vehicle	$163,000
Calculation of luxury tax Lesser of : a) 10 percent of the full retail value of the item; b) 20 percent of the amount exceeding the set threshold		$16,300 $12,600
Luxury tax amount (lesser of a and b)	$12,600
Subtotal	$175,600
HST	$22,828
Total cost of vehicle	$198,428

If you have any questions or concerns about the new Luxury Tax, and how it could impact your purchases of certain items, please contact us. We are here to help!

Disclaimer

How to Maximize your RESP?

As we approach the end of the year, there are a few things to keep in mind when it comes to your RESP. The Registered Education Savings Plan (RESP) is a government-sponsored savings plan that helps parents save for their children's post-secondary education. The RESP allows parents to save money in a tax-sheltered account and receive government grants to help grow their savings.

One of the main benefits of the RESP is that it offers tax-sheltered growth on investment earnings. This means that any money you make from investing your RESP savings will not be taxed. In addition to offering tax-deferred investment growth, RESPs have another benefit that can be leveraged. Through the Canada Education Savings Grant (CESG), RESP also offers government grants to help boost your savings.

However, the RESP has a few important rules to keep in mind, such as:

Maximum grant per year: The Canadian Education Savings Grant (CESG) is a government grant that adds 20% to your RESP savings, up to a maximum of $500 per year. Therefore, if you contributed $2,500 in a given year, you'll qualify for the full $500 in grant.

Carry-forward option: If you don't get the full grant amount each year, any unused grant room accumulates and carries forward until the year a child turns 17. You can go back one year at a time to make up for missed contributions; the accumulated carry forward cannot be utilized simultaneously.

Limits: The maximum lifetime grant is set at a limit of $7,200 per child and the maximum lifetime contribution limit of $50,000. This means that only $36,000 would qualify for the 20% CESG grant to reach the lifetime $7,200 grant limit.

What

What is the ideal RESP contribution strategy for maximizing CESG?

Now that we know the rules, the ideal RESP contribution strategy for maximizing CESG is one where you are making annual contributions of $2,500 starting the year your child is born. Parents who have delayed starting an RESP or haven't been able to contribute enough each year to receive the maximum grant amount might be able to use their carry-forward option to take advantage of that "free" government grant money. Hence the carry-forward option effectively allows you to double up on contributions to help you catch up on missed grant money.

However, even though the carry forward deadline is available until the child reaches 17, it can be very difficult to catch up on utilizing any unused grants. This is primarily due to the carry-forward rule noted above, which only allows one to go back one year at a time to make up for missed contributions. This means that the maximum grant available in a given year is $1,000, which is based on a $5,000 contribution.

If you begin catching up when your child is young, it may still be possible to play catch up. However, if you wait until your child is much older to start saving, you may never be able to receive the maximum annual grant of $500 per child or a lifetime grant amount of $7,200 per child. Let's look at two examples.

Example 1
You decide to wait until your child is nine years old to start an RESP. In this scenario, you can contribute $4,500 annually until the child turns 16 years old and still receive the full $7,200 of lifetime grant money within the eligible timeframe.
Example 2
You decide to open an RESP in the calendar year your child turns 12. In this situation, you could have six years to contribute and you can play catch up on your CESG by doubling up on the grant amount every year through the carry forward option. Thus, a contribution of $5,000 annually would allow you to receive $1,000 of grant money each year ($500 for the current year and $500 for unused room from a previous year). This would mean a total grant amount of $6,000, which is less than the lifetime grant of $7,200.

As you can see in "Example 2", the longer you wait to contribute to an RESP, the harder it’ll get to play ‘CESG catch up’ and in certain situations, you may be giving up free grant money. As a general rule, if you are starting later, but still want to get the maximum amount in CESG, you’ll have to start making RESP contributions no later than the time your child turns 10.

The Canada Education Savings Grant is a great way to save for your child's future education. By understanding the rules and contribution limits, you can ensure that you are making the most of your RESP and maximizing your benefits. Before December 31, take a few minutes to check your RESPs to make sure that you are on track to receiving the full CESG for the year. If not, consider making a catch-up contribution to ensure that you don't miss out on any free grant money.

Disclaimer

What is Non-Taxable Income in Canada?

In general, any income you earn is taxable in Canada. There are, however, a few types of income that are exempt from tax. This article will explore the few income sources that the Canada Revenue Agency (CRA) and Income Tax Act (“ITA”) have defined as non-taxable income in Canada.

Amounts paid by the government

Certain types of government benefits are considered non-taxable income in Canada and do not need to be reported on a personal tax return. These include:

GST/HST credits
Canada Child Benefits (CCB) payments and related provincial and territorial child benefits and credits
Child assistance payments and the supplement for handicapped children paid by the province of Quebec
Compensation received from a province or territory if you were a victim of a criminal act or a motor vehicle accident

However, even though certain types of income are not taxed, they must be recorded on the tax return and included in the taxable income for tax purposes before being deducted later. Because of this, these amounts may affect some tax credits, income-tested benefits, and clawbacks. The types of income include the following:

Social assistance payments such as Guaranteed Income Supplement (GIS) and the Allowance
Workers compensation benefits from T5007 slip

Gifts and inheritance

In general, gifts and inheritances are not considered non-taxable income in Canada. There are, however, some exceptions to this rule. One of the exceptions is when the gift is received from your employer in your capacity of being an employee. In those cases, the gifts will likely be considered a taxable benefit to the employee.

Another exception is when you receive gifts that are a capital property (e.g. real estate, investments). In such cases. the person who has given the gift will be deemed to have sold the capital property at fair market value (FMV). As a result, they will have to pay tax on any resulting capital gain, despite having transferred the beneficial interest in the asset to another party.

In addition to the above, gift received in the form of cash or other property from someone that is in debt to CRA will not be tax exempt. In this situation, the recipient of the cash or other property can be held responsible to pay any outstanding tax liabilities of the transferor up to the FMV of the property transferred, less the FMV of anything that was given in return. This could apply, for example, if one spouse transfers his or her stake in the family home to the other. It might also be relevant if a private company pays dividends while there is still an outstanding tax obligation. In the case of death, all tax debt owed to the government at the time of the testators death must be paid before any property can be distributed to the beneficiaries.

Also, most amounts received by the beneficiary of a life insurance policy are also not taxable.

Tax-Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs)

The tax-free savings program began in 2009. The purpose of the program is to encourage Canadians to save money by providing them with a tax-sheltered account to invest. The TFSA is available to any Canadian resident aged 18 and over. All investment income (including capital gains and dividends) earned in a TFSA is tax-free. Withdrawals from a TFSA are also not subject to taxation while contributions are not tax deductible.

The registered retirement savings plan is a long-term saving program that offers tax benefits to encourage Canadians to save for their retirement. Investment income earned in an RRSP is not taxed until it is withdrawn. However, any contributions that you have made to these accounts may be deducted from your taxable income.

There are annual limits on the amount that you can contribute to your TFSA and RRSP. For 2019 to 2022, the annual contribution limit for a TFSA is $6,000. The contribution limit for an RRSP is 18% of your previous year’s earned income, to a maximum limit of $29,210 for 2022.

Other non-taxable payments

There are also other types of payments that are considered non-taxable income in Canada. These include:

Lottery winnings unless they are regarded annuity payments
Amounts paid by Canada or an allied Country for disability or death of war veteran due to war service
Strike pay received from your union, even if you perform picketing duties as a requirement of membership.

A list of income that is not taxed can be found in the ITA in s. 81, amounts not included in computing income. For more information, also refer to CRA’s summary on Amounts that are not taxed.

If you’re concerned about unreported income or want to know whether a source is taxable or non-taxable, contact us, so we can help answer all your questions.