Our February 2023 accounting newsletter covers the latest tax and accounting updates that all Canadian business owners should be aware of. Read more to learn how these changes could affect your business.
Anti-Flipping Rules – Real Estate
As of January 1, 2023, new Anti-Flipping legislation takes effect.
In general, this provision deems sales of housing units to be considered business income rather than on account of capital if the unit is sold within 365 days after purchase. As a result, the Principle Residence deduction will not generally be available for sales that occur less than 365 days after purchase.
The full gain on the property would instead be treated as business income and is fully taxable. This could result in unexpected taxes for those flipping real estate that may otherwise have expected their home sale to be free of tax or at least taxed at capital gains rates.
There are some exemptions to this provision such as the death of the taxpayer, marital/common law breakdown, illness or disability, termination of employment, etc.
Please contact us if you have any concerns regarding these new rules and their possible impact on your finances.
Underused Housing Tax
The Underused Housing Tax is an annual 1% tax on the ownership of vacant or underused housing in Canada that took effect on January 1, 2022. The tax has application to non-resident or foreign ownership, but in some cases, can also apply to Canadian owners.
The property affected includes residential property in Canada.
This tax has a potentially broad reach because even those that may not have to pay the tax, must file an annual declaration by April 30th. Failure to file may result in penalties of between $500 – $10,000 depending on the situation.
Exclusions to the tax include:
– An individual who is a Canadian citizen or permanent resident
– A registered charity for Canadian income tax purposes
* For a more complete & comprehensive list visit: Underused Housing Tax – Canada.ca
Affected owners may include:
– An individual who is not a Canadian citizen or permanent resident
– Any person – including an individual who is a Canadian citizen or permanent resident – that owns a residential property as a partner of a partnership
– A Canadian Controlled Private Corporation (“CCPC”)
* For a more complete & comprehensive list visit: Underused Housing Tax – Canada.ca
If you have a private corporation that holds residential property, this declaration will likely be applicable to your company. We will be reaching out to potentially affected clients in the coming week. If you have not heard from us and have concerns, please reach out to us.
Vacant Home Tax
For owners of homes in Toronto and Ottawa, the Vacant Home Tax became applicable in 2022 with declarations due February/March 2023 respectively.
In general, vacant residential units will be assessed a tax of 1% based on the assessed value of the property.
Hamilton has implemented a vacant homes tax regime effective January 1, 2023, with declarations due to be filed in 2024.
This tax is managed at the municipal level and declarations are separate from regular personal/corporate tax filings by the homeowner.
It is important to ensure that if you own properties in these cities, you are aware of the compliance requirements under these new requirements.
Several other Ontario cities are considering implementing such taxes and so it is important to consider the potential future application of such taxes when investing in property.
CPP & EI on Tips
A recent case involving a restaurant was heard by the Federal Court of Appeal. At issue was whether servers tips should require the application of CPP & EI. This case has been summarized by Nicholas Terry of Blake Cassels & Graydon LLP, Vancouver in Canadian Tax Focus, Volume 13, Number 1, Feb 2023.
The case is specific to a particular fact pattern.
The restaurant had collected tips on behalf of their employees, and then paid them out to their employees after making deductions for:
1) Cash kept by the server for restaurant bills
2) Allocation of a portion of the tips to the kitchen staff
3) Processing fee charged by the restaurant. The residual amount was then electronically transferred to the employee.
The court ruled that these tips were subject to CPP & EI. This case may have significant application to how tips are handled and distributed in the hospitality industry.
Please contact us if you have any concerns over the applicability of payroll taxes to your business.
CRA Prescribed Rate Increase
Please be advised that CRA-prescribed interest will increase to 5% as of April 1st. Those with prescribed rate interest loans in place should consider the impact of such an increase.
Our London, Ontario corporate accounting firm is currently accepting new clients. If you would like more information on the services we offer, please visit our contact us page. You can also learn more about our services here and get to know our London, Ontario team here.
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