The Federal Government has made changes to the capital gains exemption and deduction for tradesperson's tools expense as well as created a multigenerational home renovation tax credit, tax-free first home savings account, and more. Crowe MacKay's tax advisors review how these changes may impact your 2023 taxes.

Multigenerational Home Renovation Tax Credit (MHRTC)

The MHRTC is a new credit for 2023 and allows for the deduction of certain renovation expenses that are incurred for the explicit purpose of creating a self-contained secondary unit. For the expenses to be eligible, the secondary unit needs to be occupied by a family member who is a senior citizen (someone over the age of 65) or an adult eligible for the disability tax credit.

A bonus is that it is a refundable credit. Amounts up to $50,000 can be claimed, 15% of which will be eligible for the credit to a maximum of $7,500. To be eligible for the credit, the renovation needs to have been completed in the year (regardless of when it was started) and must have the following characteristics:

  • Relate to a self-contained secondary unit with a private entrance, kitchen, bathroom, and sleeping area.
  • The unit is newly constructed or created from an existing living space that did not already meet local requirements to be considered a secondary dwelling unit.

In general, the person making the claim must be a resident of Canada, reside (or intend to reside) in the renovated home, and be the family member described above, or related to that individual.

Capital Gains Exemption

For 2023, the capital gains exemption for qualified small business corporation shares has risen from $913,630 to $971,190. This exemption will be indexed for inflation in subsequent years. The capital gains exemption for qualified farm or fishing property remains at $1,000,000.

Deduction for Tradesperson's Tools Expense

The maximum employment deduction for tradesperson's tools has increased from $500 to $1,000. A tradesperson can generally claim a deduction of up to $1,000, 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).

As a result of this change, extraordinary tool costs eligible under the apprentice mechanics' tools deduction are those that exceed the greater of:

  • the combined amount of the increased deduction for tradesperson's tool expenses ($1,000) and the amount of the Canada Employment Credit ($1,368 in 2023), or
  • 5% of the taxpayer's income earned as an apprentice mechanic (including apprenticeship grants less any claim for the tradesperson's deduction for tools and the amount of any apprenticeship grant overpayments repaid during the taxation year).

Underused Housing Tax

As announced in the 2021 Federal Budget, starting in 2022, residential real estate owned by non-resident, non-Canadians that is vacant, or underutilized will have a new national tax of 1% levied on the assessed value annually.

Under the enacted rules, the legal owner of the residential property would need to file an annual declaration unless they are an "excluded owner" such as:

  • An individual who is a Canadian citizen or permanent resident of Canada and holds a direct interest in the property
  • A corporation incorporated in Canada and listed on a Canadian stock exchange
  • A registered charity
  • An Indigenous governing body or a corporation owned by an Indigenous governing body
  • Certain other public service bodies (e.g., universities, public colleges, school authorities, hospital authorities)

An owner who is not excluded can be exempt from the tax if the residence in question is the primary place of residence of:

  • The owner (if the owner is an individual)
  • The owner's spouse or common-law partner
  • A child of the owner or of the owner's spouse or common-law partner, but only if the child is in Canada for the purposes of authorized study and the occupancy relates to that purpose
  • A tenant occupying the residence under a written agreement at fair rent

An exemption is also available for residential properties owned by specified Canadian corporations, which are Canadian corporations of which foreign individuals or corporations own less than 10% of the votes and value of their shares.

Additional exemptions for vacation/recreational properties would apply to properties:

  • Located in an area of Canada that is not an urban area within either a census metropolitan area or a census agglomeration having 30,000 or more residents.
  • Personally used by the owner (or the owner's spouse or common-law partner) for at least four weeks in the calendar year.

An owner eligible for any of the above exemptions would claim the exemption in the annual return that they would be required to file with the CRA in respect of the residential property.

The 2022 Underused Housing Tax filing and payment (if an exemption is not available) is due by April 30, 2024. The filing deadline has been extended twice to give taxpayers more time to become compliant.

Tax-Free First Home Savings Account

To assist Canadians with the increasing challenge of saving for a down payment on a first-time home, the government has introduced a new tax-free first home savings account that blends the benefits of both RRSPs and TFSAs. Specifically, contributions to the account are tax-deductible in a similar fashion to an RRSP, but the withdrawal (provided it was for the purchase of a new home) is non-taxable, similar to the existing tax-free savings account.

The maximum lifetime contribution limit is $40,000. Unused contribution room can be carried over to the next year, up to a maximum of $8,000, and contributions can be made for up to 15 years.

To be eligible, an individual must be at least 18 (and no less than the age of majority in your province), be a resident of Canada, have a Social Insurance Number and not have owned a home where they lived this year or at any time in the preceding four calendar years.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.