KBR Picks:  Biggest Tax and Economic Newsmakers of 2023

Evelyn Jacks

Happy New Year 2024!  May your year it be filled with good health, good friends and good fortune! To start out the year, Knowledge Bureau Report invites you to share our new interactive Calendar of Educational Events and our Top 3 Picks for the Breaking Tax and Economic News stories of 2023 that will shape the conversations tax, accounting and financial professionals will have in 2024!  See if you agree:   

No. 1 Newsmaker – Interest Rates:  The fact that indebted Canadians started the 2023 year with an overnight lending rate of 5% - the highest in 22 years - and endured 10 interest rate hikes in 16 months from March 2, 2022 to July 12, 2023 greatly influenced financial decision-making throughout the year.  (See Bank of Canada date below).

In fact, this newsmaker dramatically changed the financial landscape for homeowners, business borrowers, taxpayers who had balances due with CRA, as well as the prescribed rates to be charged on shareholder and interspousal loans.  This newsmaker, in fact, has caused enduring financial pain across most demographic profiles and will require proactive conversations throughout at least the first half of 2024.  The next interest rate announcement is on January 24, 2024.  Will there be more interest rate increases on the horizon?  

The Schedule for interest rate announcements for 2024 from the bank of Canada is as follows:

No. 2 Newsmaker:  The Underused Housing Tax.  Touted as a new tax on vacant residential property owned by non-residents, it slowly became apparent that this new tax was very broad based, extremely complicated and ensnared residential home ownership in a specified partnership, trust or private corporation.  These owners were potentially on the hook for exorbitant penalties if the UHT-2900 form, which did not become available until late January, was not filed to exempt themselves out of the 1% tax. Spouses who co-owned residential properties were especially spooked.

Two extensions to the filing due date of April 30, 2023 were announced late in the game – the second coming just hours before the end of the due date on Halloween, a source of both deadline stress and frustration for tax accounting professionals.  It was then confirmed the UHT tax returns for affected owners of property held on December 31, 2022 and 2023 would be required by April 30, 2024.  The government also backed down on the requirement for owners of properties within a specified partnership, trust or private corporation to file in order to be  exempted – but not for the 2022 filing year.  Penalties were also reduced, but are still significant.

No. 3 Newsmaker: Homeownership Solutions.   The introduction of the First Home Savings Account (FHSA) on April 1, 2023 provided a great new option for eligible Canadians age 18 to 71 to save up to $8000 a year to a lifetime maximum of $40,000 for a first home.  Together with the Home Buyer’s Plan available under the RRSP, individuals can now save up to $75,000 on a tax advantaged basis in those two plans. Effective January 1, 2024, the TFSA maximum annual contribution also jumped up to $7000.  Savings within that plan can also be withdrawn, tax free, to enable a bigger downpayment.

In addition, the government introduced a new refundable tax credit for the 2023 tax filing year:  the Multigenerational Home Renovation Tax Credit – to assist with bringing seniors and disabled adults into family care. It’s worth up to $7500.  It is quite possible, with this impetus, that Multigenerational living may become the most significant talking point for Canadian multigenerational families in 2024.

The inflation rate also started to come down in Canada, and is projected to stay at approximately 3.5 percent until the middle of 2024 according to the Bank of Canada.  If this holds true, it is projected that the Canadian economy, while slowing down, will return to the target 2 percent inflation rate at some time in 2025. 

This could be seen as either a positive bit of new good news for those renewing mortgages or taking business loans over the next two years, or an indicator that they may be renewing those debts as their peak.  Time will tell.  However, we predicted that managing purchasing power after taxes, inflation and interest costs – especially non-deductible ones – will dominate financial planning for at least the first six months of the year. 

Bottom Line:  That’s the essence of the work of the Real Wealth Manager (RWM™) who will want to  review wealth management plans with clients early in 2024. The focus is on three documents:  the net worth statement, the tax return and the financial plans to be made.