There are several significant tax developments that may impact clients in the coming year. According to Jamie Golombek, Managing Director of Tax and Estate Planning at CIBC Private Wealth, 2023 is expected to bring interesting changes in terms of taxes. Along with updates to tax rates and tax credit amounts, new measures including the tax-free first home savings account (FHSA) and the new anti-flipping tax rule were recently passed with the Royal Assent of Bill C-32.
The tax-free first home savings account (FHSA) will allow first-time homebuyers to save for a down payment on a tax-free basis, starting on April 1, 2023. Similar to a Registered Retirement Savings Plan (RRSP), contributions to an FHSA are tax-deductible, but withdrawals made to purchase a first home are non-taxable, similar to a Tax-Free Savings Account (TFSA). The FHSA has an annual contribution limit of $8,000 and a lifetime contribution limit of $40,000. Golombek notes that the FHSA provides the benefits of both an RRSP and a TFSA. Clients who do not have enough money to make an FHSA contribution can transfer funds from their RRSP to the FHSA, allowing them to make tax-free withdrawals to purchase their first home. More information on the FHSA is expected to be released in 2023, depending on when financial institutions are ready to launch the product. The new anti-flipping tax rule, which was introduced in the 2022 federal budget, becomes effective on January 1. This rule states that individuals who sell a residence within 12 months of acquiring it will be deemed to have flipped it unless they qualify for an exemption, such as in the case of death, divorce, or disability.
Golombek is also keeping an eye on the potential introduction of a new alternative minimum tax (AMT) by the government, which would go beyond the current regime. Canada already has an AMT that limits the tax deduction available from certain incentives, but the Liberal government believes that high-income earners are not paying enough tax and has suggested updating the existing rules. Golombek advises high-income earners to be aware of this potential change. In 2023, there may also be proposals to end surplus stripping, which allows individuals to take money out of a corporation at capital gain rates rather than dividend rates. Golombek notes that this change may be on the table. There may be other unknown changes in store for 2023, and Golombek plans to closely follow these developments as the new year begins.