With personal tax filing season just around the corner, we thought we would take this opportunity to outline some of the recent changes that will impact Canadian and US personal tax filings for the 2023 year.
Canada personal income tax updates
- Advanced Canada Workers benefit (ACWB)
Taxpayers that received the Canada Workers Benefit payments in a previous tax year would now receive the advance payments under the ACWB. They are no longer required to apply for the benefits on Form RC201 (Canada Workers Benefit Advance Payments Application). Commencing with the 2023 tax year, any amounts from RC210 slip are to be reported on Schedule 6 to calculate the amount to enter on line 41500 of your return.
- Climate action incentive payment (CAIP)
The rural supplement portion of the climate action incentive payment is doubled to 20% starting in April 2024.
- Deduction for tools (tradespersons and apprentice mechanics)
The maximum employment deduction for tradespersons’ eligible tools has increased from
$500 to $1,000.
- Federal, provincial, and territorial COVID-19 benefit repayments
Covid-19 benefit repayments made after December 31, 2022 can be claimed as a deduction on line 23200 on the 2023 return.
- First home savings account (FHSA)
This plan is intended to assist individuals to save for their first home. Any contributions made to a FHSA are generally deductible and any qualifying withdrawals made from a FHSA to purchase a qualifying home are tax-free.
- Multigenerational home renovation tax credit (MHRTC)
An eligible individual can claim renovation costs that were incurred to create a secondary unit within an eligible dwelling for a qualifying individual to reside with their qualifying relation under the MHRTC credit. If eligible, a taxpayer can claim up to $50,000 in qualifying expenditures for each qualifying renovation completed, up to a maximum credit of $7,500 for each claim you are eligible to make.
- Property flipping
Gains from the disposition of a housing unit (including rental property) located in Canada, or a right to acquire a housing unit located in Canada, that was owned or held for less than 365 consecutive days before its disposition is deemed to be business income and not a capital
gain, unless the property was part of an inventory or the disposition occurred due to or in anticipation of certain life events.
US personal income tax updates
- Annual Inflation adjustments
• Federal income tax brackets have increased by roughly 7% as compared to the previous tax year for all filing statuses. This expands the amount of taxable income a taxpayer can have in a particular tier.
• The amount of standard deduction increased to $27,700 for married couples filing jointly and $13,850 for single filers.
- Child tax credit changes
The child tax credit has been modified to include a refundable portion of up to $1,600. The changes involve a per-child basis calculation, multiplying earned income exceeding $2,500 by 15 percent and then by the total number of children. These modifications are expected to apply to the 2023-2025 tax years, with the maximum refundable credit increasing to $1,800 for 2023, $1,900 for 2024, and $2,000 for 2025. The overall CTC maximum will also be adjusted for inflation in 2024 and 2025. Completing an applicable schedule 8812 would be required to determine the CTC amount and potential refund.
- Qualified commercial clean vehicle credits
Taxpayers can claim the Qualified Commercial Clean Vehicle Credit for purchasing and placing in service in a business a “qualified commercial clean vehicle” during the taxable year. The vehicle must have been used for business purposes. A qualified commercial clean vehicle is a vehicle that is made by a qualified manufacturer as defined by the IRS and is acquired for use or lease by the taxpayer and not for resale. The amount of the credit is equivalent to the lesser of: (i) 15% of the taxpayer’s tax basis in the vehicle (30% in the case of a vehicle not powered by a gasoline or diesel internal combustion engine); or (ii) the incremental cost of the vehicle – which is usually the excess of the purchase price over the price of a comparable vehicle. The credit is limited to $7,500 in the case of a vehicle with a gross vehicle weight rating of less than 14,000 pounds and $40,000 for all other vehicles.
- Home energy credits
The energy efficient home improvement credit has been increased to $1,200 from the previous amount of $500 for years after 2022. Beginning in 2023, the amount of the credit is equivalent to 30% of the sum of amounts paid by the taxpayer for certain qualified expenditures including: (i) qualified energy efficiency improvements installed during the year; (ii) residential energy property expenditures during the year; and (iii) home energy audits during the year. The credit is available for qualifying property placed in service on or after January 1, 2023 and before January 1, 2033.
- Disaster tax relief
• Individuals and businesses in parts of Tennessee affected by severe storms and tornadoes that began on December 9, 2023 now have until June 17, 2024, to file various federal individual and business tax returns and make tax payments.
• Taxpayers affected by severe storms and flooding in parts of Illinois now have until February 15, 2024, to file various individual and business tax returns and make tax payments.
• Hawaii wildfire victims in Maui and Hawaii counties now have until February 15, 2024, to file various federal individual and business tax returns and make tax payments.
• Taxpayers affected by Hurricane Lee anywhere in Maine and Massachusetts now have until February 15, 2024, to file various federal individual and business tax returns and make tax payments.
• Individuals and businesses affected by Hurricane Idalia in several counties in Georgia, South Carolina, and Florida now have until February 15, 2024, to file various federal individual and business tax returns and make tax payments.
Speak to your Welch LLP advisor to discuss whether these or any other changes will have an impact on your personal tax filings for 2023 and beyond.