Tax Updates for 2023: What Retirees Need to Know
If you're a retiree or about to become one, you'll be pleased to know that there haven't been many major tax changes this year. However, there are still a few updates that you should be aware of, especially if you’re thinking about renovations in the next few years.
Whether planning for yourself or helping an aging parent, the updates for home renovation credits and the disability tax credit (DTC) could lead to large tax savings for those who are eligible.
In this article, I’m going to highlight a few changes that retirees need to know. If you’d like a more general overview of this year’s tax changes, CPA Canada has a good list.
Tax filing deadline
Your tax return for 2022 must be filed by April 30, 2023. However, since this date falls on a Sunday, the deadline is extended to May 1st.
The easiest way to get your tax info
Before getting to the updates, I highly encourage readers to sign up for an online account with the Canada Revenue Agency (CRA). Not only is it a more efficient way to access your tax info compared to calling the CRA and waiting on hold, but creating an account will also enable you to access Canada Pension Plan (CPP) information from Service Canada.
If you’re in a rush, you can also sign in immediately using one of the CRA’s sign-in partners.
New and expanded tax credits
Here are the new and expanded tax credits that may be of interest to retirees:
Home Accessibility Tax Credit (Expanded)
The 2022 limit for eligible expenses for the Home Accessibility Tax Credit has increased from $10,000 to $20,000. This brings the potential tax savings for this credit up to $3,000 ($20,000 x 15%).
If the renovation also qualifies for the medical expense tax credit, you may be able to claim both credits for the same expense.
If you’re planning on renovations in the future to facilitate aging-in-place for yourself or a parent, you might want to consider implementing the renovations over time to stay under the $20,000 annual limit.
Multigenerational home renovation tax credit (New)
The Multigenerational home renovation tax credit is new for 2023, so it won’t affect your 2022 tax return, but if you’ve got plans for a renovation, this might be worth keeping in mind.
The credit provides a 15% federal tax saving on up to $50,000 of eligible expenses, resulting in a maximum savings of $7500.
I made a poll on Twitter earlier this year and I was a bit surprised by the level of interest in adding secondary suites. It looks like there is growing interest in multi-generational housing.
Disability tax credit (Expanded)
Many people still aren’t aware of the disability tax credit (DTC), despite the sizable savings that it offers. The credit provides a federal tax savings of $1,330.50, and the provinces each have their own disability credits in varying amounts. Because it is possible to receive the DTC retroactively for up to 10 years, this credit can lead to large refunds.
Eligibility for the DTC was expanded in 2022 for those receiving life-sustaining therapies, including type 1 diabetes. The list of mental functions necessary for everyday life was also expanded, increasing the range of conditions that may be eligible.
Being eligible for the DTC is also a requirement for other benefits, such as the Registered Disability Savings Plan and various medical expenses, so it is worth having this tax credit on your radar.
First home savings account (New)
This new registered account type likely won’t be one that most readers will be able to use, but it may be worth sharing with your kids.
The new First Home Savings Account (FHSA) will allow eligible Canadians to contribute an extra $8,000 per year to their RRSP, up to a lifetime maximum of $40,000.
Unlike the Home Buyers Plan, withdrawals from the FHSA that are used to buy a qualifying home don’t have to be paid back.
Other important updates and reminders
A few other updates:
The new Tax-Free Savings Account (TFSA) contribution limit for 2023 is $6,500.
This brings the cumulative total for someone born before 1992 up to $88,000.
Not sure of your TFSA limit? Your CRA account will tell you the available room as of January 1st of each new year.
The Old Age Security (OAS) clawback threshold for 2023 is $86,912.
Keep your 2023 taxable income below this level to keep all of your OAS.
The threshold for medical expenses is 3% of net income.
Medical expenses become easier to claim in retirement as net income goes down and expenses start to go up.
Quick Tip: Go to your pharmacy at the end of the year and ask for a printed prescription summary!
Underused Housing Tax (UHT)
There are a few surprising situations where there may be a requirement to file an additional type of info return.
Notably, parents who are listed as owners of property of their children’s homes for mortgage purposes may qualify as trustees and therefore be required to file.
Failure to file the new annual UHT return can result in penalties starting at $5,000, so speak to your accountant if you think any of these situations may apply to you.
This $1,400 credit has been around since 2009, but it is often forgotten.
If you’re helping an aging parent or other family member so they can stay living in their home, be sure to check to see if you may be eligible.
Plan ahead to save
Whether you're considering home renovations, helping an aging parent, or planning for the future, the new and expanded tax credits can help you keep more money in your pocket.
