Tax changes to watch for in 2023

As 2022 comes to a close, there have been significant tax developments that could affect clients in the year ahead.

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“2023 is going to be an interesting year in terms of tax changes,” said Jamie Golombek, managing director of tax and estate planning with CIBC Private Wealth.

In addition to updated tax rates and tax credit amounts, new measures such as the tax-free first home savings account (FHSA) and the new anti-flipping tax rule passed last week when Bill C-32 received royal assent.

The FHSA, which has an effective date of April 1, 2023, will allow first-time homebuyers to save for a down payment on a tax-free basis. As with an RRSP, contributions to an FHSA are tax-deductible; but withdrawals to purchase a first home are non-taxable, as with a TFSA. There is an annual contribution limit of $8,000 and a lifetime contribution limit of $40,000.

“You’re really getting the benefits of the RRSP,” Golombek said, “and ultimately, the benefits of the TFSA as well.”

Further, Golombek said clients who do not have enough money to make an FHSA contribution can take money from their RRSP and move it to the FHSA. “You won’t get another deduction, but you’d be able to then take the money out tax-free to buy that first home,” he said.

More details will likely come in 2023, but he said the timing will depend on when financial ​​institutions are ready to launch that particular product.

The new anti-flipping tax rule, introduced in the 2022 federal budget, is effective as of Jan. 1. The new rule states that an individual who sells a residence within 12 months of acquiring it will be deemed to have flipped it unless they qualify for an exemption, such as a death, divorce or a disability.

Golombek said he is also keeping a close eye on whether or not the government will introduce a new alternative minimum tax (AMT) that goes further than the current regime. Canada already has an AMT, which limits the tax deduction available from certain incentives, but Golombek said the Liberal government is concerned high-income earners are not paying enough tax and has suggested the existing rules need updating. In the meantime, high-income earners should be on the lookout, he said.

As for proposals to watch out for in 2023, Golombek said some are predicting the end of surplus stripping, or the opportunity to take money out of a corporation at capital gain rates instead of a dividend rate. “That might certainly be on the chopping block,” he said.

“We don’t know what else could be in store, but we’re going to follow those developments very, very closely as we start 2023,” he said.

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Maddie Johnson

Maddie is a freelance writer and editor who has been reporting for Advisor.ca since 2019.