As the tax season approaches, Canadians need to be aware of several key changes and reporting requirements that will impact their 2023 returns.
One significant change is in the Canada Pension Plan (CPP) and Employment Insurance (EI) contributions. Effective January 1, a second earnings ceiling has been introduced, affecting many Canadian earners. Previously, there was a set maximum amount for CPP contributions, but now there are two tiers. If you earn $68,500 or less, your contribution rates remain unchanged. However, those earning above $68,500 fall into a second tier, contributing an additional four percent on income between $68,500 and $73,200, with a maximum extra contribution of $188. John Oakey, VP of Taxation at CPA Canada, highlighted the potential tax burden for both middle-income employees and their employers, emphasizing the significant impact on employment taxes.
In conjunction with CPP changes, the maximum insurable earnings ceiling for EI has risen to $63,200, a normal course of business adjustment. Oakey stressed the combined impact of CPP and EI, resulting in a substantial 14.5 percent employment tax for both employers and employees. This increased financial burden and administrative complexity could pose challenges for businesses and individuals alike.
Another notable change is the introduction of trust reporting requirements. Starting this spring, Canadians must disclose beneficial ownership information for trusts, including "bare trusts." A bare trust involves legal ownership without additional responsibilities, potentially leading to confusion for taxpayers who may be unaware of their involvement. Oakey emphasized the government's intent to address illicit activities involving bare trusts while acknowledging their legitimate use in situations like minors inheriting money. Despite potential confusion, the Canada Revenue Agency (CRA) has temporarily waived penalties for late filings related to bare trusts for the 2023 taxation year.
Additionally, the federal government aims to curtail tax expensing for non-compliant short-term rental operators, effective January 1. Operators in banned jurisdictions or non-compliant with local rules won't be able to claim property expenses. While designed as a disincentive for short-term rentals, there are concerns this may drive some operations underground, creating unintended consequences.
Lastly, crucial deadlines must be noted. February 29 is the deadline for RRSP contributions for the 2023 tax year. Employers must submit T4, T4A, and T5 slips by this date, electronically if there are more than five slips to avoid penalties. T3 trust returns with Schedule 15 beneficial ownership information are due by April 2. Personal income tax returns must be filed by April 30, with a later deadline of June 17 for self-employed individuals. Oakey emphasized the importance of filing and paying taxes on time to avoid penalties.
In conclusion, Canadians must navigate these changes with careful consideration to ensure compliance and minimize any potential financial impacts.
