With the tax filing deadline less than a month away, the long weekend is as good a time as any for property owners to hunker down and tackle their taxes ahead of the annual April 30 deadline (which has been pushed this year to May 1, due to April 30 falling on a Sunday). But what exactly that might entail depends on the nature of the property owned.
Cindy Marques, a Certified Financial Planner in Toronto and Director of Financial Planning at Open Access Ltd, says that, for the average Canadian homeowner, the process of filing taxes can be relatively straightforward. Still, she advises homeowners to make themselves aware of the incentives and deductions offered by the Canada Revenue Agency.
"There are rebates and benefits, paid out to you in cash, and tax credits, which reduce taxes owed, that you can claim,” she says. Utilizing those benefits, so long as you follow the rules and eligibility requirements, can mean more money in your pocket.
For example, the GST/HST New Housing Rebate is available to Canadians who have purchased a new, or substantially renovated, home. “The new housing rebate has increased in 2022, doubling the amount you can claim and receive,” adds Marques.
She also points to the First-Time Home Buyer’s Tax Credit, under which eligible buyers can receive a tax credit of up to $1,500, and the Home Accessibility Tax Credit, which enables Canadians to claim expenses from accessibility-related renovations made for the sake of a qualifying individual, including seniors and individuals eligible for the Disability Tax Credit. Additionally, new this year is the Multi-Generational Home Renovation Tax Credit, which is designed to help homeowners with expenses related to constructing a secondary unit on their property.
Canadians who work from home also have the opportunity to claim certain home office expenses -- but Marques cautions those wishing to utilize the benefit to be exact when making such claims.
“Don’t guess at the values. If the CRA audits you and you cannot produce proof of expenses with receipts, they will deny the expenses and you’ll be left having to pay back the difference in taxes owed,” she says, adding that home office expenses tend to be poorly measured and thus more likely to be contested by the CRA.
“This is not a fully exhaustive list of benefits available, but some of the most common ones to keep an eye out for,” Marques continues, pointing to the federal benefits finder tool as a way for homeowners to suss out what else they may be eligible for.
A host of provincial benefits exist for homeowners as well, she adds, which can be explored online. “Essentially, a quick Google search with “(name of your province)” + “benefits and credits” will take you to the appropriate provincial government webpage with the resources you need, explained."
As long as you’re willing to do your research, it's well within reason for homeowners to file their own taxes.
“For the most part, if you didn’t sell a property in the tax year, which can complicate your return, nearly all of the credits and benefits I’ve mentioned are typically prompted by online tax filing software,” says Marques. “Though some require separate applications which are not filed on your income tax return, such as the new housing rebate.”
Changes in effect, “tax nuances” to consider for income property owners
“For rental property owners, there are complexities and various tax nuances that need to be considered,” says Jennifer Lucier, a Tax Partner with BDO Canada's Oakville office. For instance, while you can certainly claim expenses, it’s critical to first determine whether they are current or capital expenses, and confusing the two can mean reporting incorrect income. And if your rental expenses ended up being more than your rental income in the taxation year, you’ll need to claim a loss.
“Every person out there probably doesn't understand all the various tax aspects and considerations that go into owning property, so it provides a lot of value to utilize a professional accountant who can assist them with ensuring they're capturing everything they possibly can to report correctly, number one, and to provide the best overall tax benefit,” Lucier continues.
And of course, there are penalties for property owners to consider if any mistakes are made in the filing process.
“If the CRA notices that there was an underreporting of income or errors on the return and there should have been additional tax to be paid, now you're dealing with that back tax, along with interest and potential penalties as a result,” says Lucier. “And sometimes they don't look at that until years down the road.”
She adds that there are certain changes in effect this tax season that stand to add more layers of complexity to the filing process.
For instance, the Underused Housing Tax, which is a 1% tax on the ownership of vacant or underused housing that took into effect in Canada on January 1, 2022. Although the tax tends to chiefly apply to non-Canadian property owners, there are some circumstances in which it applies to Canadian owners as well.
One of those circumstances is if you own a secondary property, such as a vacation property, through a corporation, partnership, or trust as of December 31, 2022. In addition to shelling out the tax, applicable owners must file an Underused Housing Tax Return for each residential property.
“I think a lot of people might be overlooking this tax, but it's something that needs to be considered,” says Lucier, adding that the penalties for failing to file the appropriate return are quite steep, ranging from $5,000 to $10,000.
“Another thing that needs to be thought about, that maybe people aren't thinking about, is if you buy foreign property -- it seems to be becoming more and more common,” she says. “As a Canadian resident, you're required to report your worldwide income, and rental income from a property outside of Canada falls into worldwide income and should be captured on your personal tax return.”
In addition, a foreign reporting form must be reported each year to disclose ownership of a rental property outside of Canada, and failure to file can lead to a $2,500 penalty.