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 Toronto 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 New Toronto 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 the 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 Toronto Vacant Home Tax and eligible exemptions, please contact us. We are here to help!

If you want to learn more about other tax and accounting topics, explore the rest of our blog!

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.

Are you falling behind when it comes to saving for your child's education? Don't worry, you're not alone. Many parents find themselves playing "RESP catch up" as they realize the importance of funding their child's future education. In this article, we will explore strategies and tips to help you get back on track and maximize your contributions to a Registered Education Savings Plan (RESP).

Whether you're just starting to save for your child's education or already have an RESP in place, this guide will provide you with valuable insights and practical tips to help you make the most of this vital investment vehicle. So, let's dive in and discover how you can unleash the full potential of your RESP and set your child up for a bright and successful academic journey.

What is an RESP and how does RESP work?

An RESP is a government-sponsored investment vehicle designed to help parents save for their child's post-secondary education. It allows you to contribute money into an account that grows tax-free until your child is ready to pursue higher education.

The way an RESP works is quite simple. Once you open an account, you can start making contributions. These contributions can be made by anyone, including grandparents, relatives, and friends. The money you contribute is invested and has the potential to grow over time. When your child is ready to attend college or university, they can begin withdrawing funds from the RESP to pay for their education expenses.

What are the benefits of having an RESP?

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.

RESP catch up contribution limits

When it comes to RESP catch up, there are certain contribution limits that you need to be aware of.

• Maximum contribution limit per year: The maximum annual contribution limit is $2,500 per child.

• 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.

• Maximum lifetime grant and contribution 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

How to play RESP catch up to maximize RESP grant or 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.

Conclusion

In conclusion, an RESP is a powerful tool that can help you save for your child's education and give them a head start in life. RESP catch up is a valuable strategy that allows you to accelerate your child's education savings by maximizing your contributions. By taking advantage of the catch-up provision, you can make up for lost time and potentially grow your child's education fund faster.

Before December 31 of every year, 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.  If you have any questions on how to maximize your RESPs, please contact us.

If you want to learn more about other tax and accounting topics, explore the rest of our blog!

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.

As the tax season rolls around each year, Canadians find themselves immersed in the complexities of the Canadian taxation system. Properly reporting income is crucial to avoid penalties and the accumulation of outstanding balances with the Canada Revenue Agency (CRA). While taxable income forms the bulk of one's earnings, there are certain sources of income that the CRA and Income Tax Act have deemed non-taxable income in Canada. In this article, we will explore the various types of non-taxable income in Canada, shedding light on the exemptions and regulations associated with each category.

Amounts paid by the government

One of the primary categories of non-taxable income in Canada is certain payments received from the provincial and federal governments. These types of government benefits do not need to be reported on a personal tax return. These payments include:

• GST/HST credits: The GST/HST credit is a tax-free quarterly payment provided by the federal government to help low-income individuals and families offset the taxes paid on goods and services. This credit is calculated based on various factors, including family size and income level. It is important to note that this credit is considered non-taxable income in Canada and does not need to be declared as part of your income tax filings.
• Canada Child Benefits (CCB): The Canada Child Benefit is a tax-free monthly payment provided by the federal government and provincial government to eligible families to assist with the cost of raising children. The amount received through the CCB is based on factors such as the number of children in the family, their ages, and the family's income level.
• Child assistance payments (Quebec): In Quebec, the provincial government provides child assistance and supplement payments to eligible families for handicapped children. These payments are intended to support the financial needs of children and are considered non-taxable income in Canada. If you reside in Quebec and receive child assistance payments, you are not required to include them in your taxable income.

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 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 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, gifts received in the form of cash or other property from someone who 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 for paying 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 testator's 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 considered non-taxable income in Canada.

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. The annual RRSP and TFSA contribution limit can be found on the CRA's website.

Related: Year-End Tax Planning Tips - 2022

Other non-taxable income in Canada

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

• Lottery winnings unless they are regarded as 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.

Conclusion

Understanding the various sources of non-taxable income in Canada is essential for accurately reporting your earnings and maximizing your tax benefits. From government payments to TFSAs, RRSPs, lottery winnings, gifts, and inheritances, these non-taxable income sources provide individuals with opportunities to grow their wealth without incurring additional tax liabilities. If you’re concerned about unreported income or want to know whether a source is taxable or considered non-taxable income in Canada, speak to a professional tax accountant or contact us, so we can help answer all your questions.

If you want to learn more about other tax and accounting topics, explore the rest of our blog!

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.