Home office expense changes, the cost of paying late and other things you may not know about taxes

Canada Revenue Agency webpage. THE CANADIAN PRESS/Graeme Roy

Taxes may well be a certainty of life, but they can morph and multiply by the year, including some big changes this filing season.

Here are the new rules you should know about:

Deducting home office expenses

Throughout the COVID-19 pandemic, workers could deduct $2 a day from their taxable earnings for each day worked from home, up to a maximum of $500. That “temporary flat rate” no longer applies.

When filing for 2023, employees can only deduct home office expenses if they were required - not simply allowed - to work from home more than half the time for at least a month straight. And they need a form called the T2200 signed and handed over by their employer to do so.

“You've got to add up all your expenses, whether it's utilities or repairs and all the rest, and then claim a portion of those based on the square footage of your office as a percentage of your entire home,” said Tim Cestnick, a tax and personal finance expert.

Paying late? Higher rate

The interest rate on overdue income taxes has risen to 10 per cent from nine per cent.

“It can be a pretty big hit for people,” said Nicole Ewing, director of tax and estate planning at TD Wealth. “File and pay as early as you can to avoid any of that.”

Experts recommend filing on time - the deadline is April 30 - even if you know you can't immediately fork over the money, in order to avoid late penalties.

“You might even be better off borrowing money from the bank or borrowing on a line of credit to pay your taxes, because that rate's probably lower than what the CRA is charging on overdue taxes,” said Cestnick.

Savings for your first home

As of last April, Canadians who have not owned a home for at least four years can make contributions of up to $8,000 annually to the First Home Savings Account, with a total cap of $40,000.

Money socked away here is tax-deductible, and the income earned inside the registered plan will not be taxed either, including when it's withdrawn to put toward a house or condo.

However, unlike with a Tax-Free Savings Account or a Registered Retirement Savings Plan, the carry-forward limit maxes out quickly.

“So if you open an FHSA, make no contributions to it for 10 years, you have carry-forward room of $8,000; you have not accrued $40,000 of carry-forward room,” Ewing said.

“In year 11, for example, you can make your $8,000 contribution, plus $8,000 of carry-forward.”

Moreover, the FHSA currently has a 15-year time limit, after which the funds can be transferred to an RRSP or withdrawn as taxable income, if it's not used to buy a home.

Save 15 per cent when Grandma moves in

With housing an increasingly scarce resource, the Multigenerational Home Renovation Tax Credit aims to ease the cost of establishing a secondary unit.

“Perhaps your parents are moving in with you and you're caring for them and making room in your home that is where the tax credit can be relevant,” said Ewing. Family members aged 18 or over who are dependent - from nieces to aunts - also count.

The credit lets homeowners claim 15 per cent of the renovation cost up to a maximum of $50,000, potentially allowing them to subtract as much as $7,500 from their income tax.

However, the mother-in-law suite must be self-contained.

“It has to have its own entrance, its own kitchen, bathroom, sleeping area,” noted Cestnick. “You can't just sort of carve up one room of the house and then renovate it and claim the tax credit.”

Flipping the script on home flippers

As of Jan. 1, profits from the sale of residential properties owned for less than a year are taxed as business income, rather than treated as a tax-free capital gain if it's your primary residence.

“The government's been concerned about people who are buying, fixing up and flipping properties. For many years people have been kind of abusing the rules and calling these properties their principal residences and really not paying any tax,” Cestnick said.

However, there are some key exceptions.

“The government doesn't want a rule like this to require people to stay in bad marriages or to stay with somebody if there's a threat of domestic violence,” Ewing said. A death, illness or disability might also allow for a sale soon after purchase that would be exempt from taxation.

Drawbacks of beneficial ownership

The reporting rules around trusts have expanded to include taxpayers who didn't have to note them on their returns before.

Trustees who are part of so-called bare trusts - where a trustee holds title to a property or other asset but has no other powers, all of which are held by the beneficiary - must now file tax information in a lengthy Schedule 15 form by April 2 (not April 30).

“Let's say you open up an investment account for a minor child, a grandchild or a child,” said Cestnick. “The government is saying, that's a trust arrangement and now you need to file a tax return for that trust arrangement” - if the account holds $50,000 or more.

A house where the parent's name is on the title of a home owned by their child - who perhaps couldn't qualify for a mortgage without Mom's backing - would likely count as well, he said.

“It's not clear who needs to file and in what situations,” Cestnick added. “There are a lot of situations where it's a grey area.”

John Oakey, vice-president of tax at CPA Canada, advised taxpayers who think they might be in a trust position to consult with a professional.

Ratcheting up the tool deduction

Employees in the trades can now deduct twice the amount of their tool-related costs: $1,000 versus $500 the previous year.

While a welcome move, it might not make a significant difference.

“They have to pay for their own tools quite often,” Cestnick said of tradespeople. “It'll help a little bit.

“But if you spend $1,000 on tools, you might get back $300 or maybe $350 when you claim the deduction for those things,” he said, assuming an annual income of around $100,000.

This report by The Canadian Press was first published March 14, 2024.