Tax Tips & Traps

In some situations, a registered charity may be asked to receive donations on behalf of another organization or cause. While this may seem like a good way to generate funds and reward donors with charitable contribution receipts, it can have serious implications for the charity.

A February 1, 2023 Technical Interpretation considered a charity that would collect funds, issue receipts, and then disburse the funds to a qualified donee (a municipality). The municipality would then direct the funds to a non-qualified donee. The charity’s intention was to assist a non-qualified donee (in this case, a non-profit organization) in a fundraising campaign by collecting funds and issuing receipts.

A charity may have its status revoked if the charity:

• carries on a business that is not a related business of that charity;
• fails to expend amounts in any taxation year on charitable activities carried on by the charity and by way of qualifying disbursements, the total of which is at least equal to the charity’s disbursement quota for that year; or
• makes a disbursement, other than
• one made in the course of charitable activities carried on by it, or
• a qualifying disbursement.

If the charity’s disbursement to the municipality was not a qualifying disbursement, the charity could have its status revoked.

A qualifying disbursement includes a gift to a qualified donee. A qualified donee includes a municipality in Canada that is registered by the Minister.

It is a question of fact as to whether the transfer to the qualified donee constituted a gift received, and therefore a qualifying disbursement. CRA’s general view is that donations can be received and receipted by a qualified donee (such as the municipality), provided that the qualified donee retains discretion regarding how the donated funds will be spent. If a qualified donee is merely acting as a conduit by collecting funds from donors, including a charity, on behalf of an organization that is legally or otherwise entitled to the funds so donated, the qualified donee is not in receipt of a gift. In this case, the gift from the charity would not be a qualifying disbursement.

A charity may also have its status revoked if it accepts a gift, the granting of which was conditional on the charity making a gift to another person, club, society, association or organization other than a qualified donee.

ACTION: Caution and professional guidance should be sought should a charity consider accepting donations on behalf of another organization.

In a March 30, 2023 Tax Court of Canada case, the taxpayer was assessed for failing to withhold taxes on rent paid on Canadian real estate to a non-resident. Penalties and interest were also assessed.

The information known to the taxpayer was limited to an Italian telephone number on the lease document (with a Canadian number), the landlord’s email address ending with “.it” rather than “.ca” or “.com” and some Italian writing at the bottom of an email. The taxpayer argued that he did not know that the landlord was a non-resident, and that a due diligence defence should apply.

Taxpayer loses
The Court first noted that a non-resident is subject to a 25% flat tax on gross rent received on Canadian property. The Canadian resident paying the rent is required to withhold and remit this tax and is liable for it if this is not done. Penalties and interest on this amount also apply.

The Court then noted that the withholding requirement exists regardless of whether or not the taxpayer knows that the landlord is non-resident. Further, there is no due diligence defence in respect of the tax withholding. As such, the taxpayer was liable for the tax not withheld.

The Court stated that a due diligence defence could apply to penalties and interest. However, the taxpayer provided no evidence of any efforts to confirm the landlord’s residency. The absence of any reason to question the landlord’s residency was insufficient – due diligence requires taking positive steps to ensure compliance.

Action: Ensure to take proactive steps to understand a landlord’s residency status. Renters can be liable for unmerited withholdings even if they do not know the landlord’s residency status.

The DTC is a non-refundable tax credit that provides tax relief for individuals (or those that support those individuals) who have a severe and prolonged impairment in physical or mental functions. To access the DTC, eligible individuals must apply for it by completing Form T2201, Disability Tax Certificate. Recently, CRA updated their services so that this application can be completed and submitted entirely electronically.

The patient can complete the non-medical portion (Part A) of Form T2201 online in CRA’s My Account with data prepopulated from CRA’s files. Doing so will generate a reference number that can be provided to the medical practitioner for entry when they complete the medical certification (Part B) within the existing digital application (https://apps.cra-arc.gc.ca/ebci/uisp/dtc/patient). The information is automatically submitted to CRA on completion of the medical certification (Part B), provided the medical practitioner has entered the reference number.

The reference number will remain on My Account until the medical certification (Part B) is completed. Representatives cannot currently complete the non-medical portion (Part A) through their Represent a Client account.

To use this new option, the patient (person applying for the DTC) must register for CRA’s My Account.

Alternatively, the non-medical portion (Part A) can be completed over the phone, either by calling the personal tax general enquiries line (1-800-959-8281) or through a new automated voice system (1-800-463-4421). The automated voice system indicates that it is intended to be used only by the disabled individual.

ACTION: To speed up and simplify the process for applying for the disability tax credit, consider using the electronic method.

The multigenerational home renovation tax credit is a refundable tax credit applicable to the costs of constructing a secondary suite for an eligible person (generally a relative either age 65 or over, or eligible for the disability tax credit) to live with a qualifying relation. The tax credit is available on up to $50,000 of eligible expenditures incurred after 2022 at a rate of 15%.

In a March 6, 2023 Technical Interpretation, CRA confirmed that the eligible person must ordinarily inhabit, or be intended to ordinarily inhabit, the new dwelling unit constructed, but does not have to reside with the qualifying relation before the renovations are undertaken.

In a second March 6, 2023 Technical Interpretation, CRA was asked whether the construction of a separate, detached housing unit on the same parcel of land as a principal housing unit, such as a carriage house or laneway house, would be eligible. CRA noted that a qualifying renovation must enable the qualifying individual to reside in the dwelling by establishing a secondary unit within the dwelling. CRA indicated that a second detached housing unit located on the same parcel of land as the primary dwelling unit would be considered to be located within the dwelling (that is, the dwelling would be considered to include the subjacent land) and would qualify for the credit.

CRA noted that all other requirements must be met, cautioning that this includes the second property being permitted under local law and regulations, as many municipalities do not permit detached secondary units.

ACTION: If building a secondary suite for a family member 65 years of age or older, or eligible for the disability tax credit, check whether you can claim this new credit.

A June 7, 2023 CryptoTaxLawyer.com article (Binance Bids Canada Bye-Bye! Canadian Tax Implications for Cryptocurrency Investors and Traders) reminded Canadians about the importance of maintaining an offline record of transactions as exchanges, such as Binance, shut down in Canada. On May 12, 2023, Binance announced that Canadian users will be required to close any open positions by September 30, 2023.

Once the exchange is closed to Canadians, there is the possibility that access to records will disappear. Such records are necessary to support tax positions and filings. The article also noted that records may need to be maintained well beyond six years as they can support the determination of tax that may occur much farther into the future. For example, if a cryptocurrency was purchased in 2015, but is sold in 2025, records must be maintained to support the cost of the cryptocurrency sold for reporting purposes in 2025.

Action: Ensure records of transactions are retained offline in the event that they are no longer available online in the future.

The tax-free FHSA was introduced in 2023 to help first-time home buyers save up to $40,000 for a home purchase.

Individuals eligible to open an FHSA must be at least 18 years of age and resident in Canada. The individual must also have not lived in a home that they or their spouse owned jointly or otherwise at any time in the year or the preceding four calendar years.

Contributions to an FHSA are deductible (like an RRSP). Income earned in an FHSA and qualifying withdrawals from an FHSA made to purchase a first homeare non-taxable (like a TFSA).

The lifetime limit on contributions is $40,000, subject to an annual contribution limit of $8,000, both of which apply at the individual level. Each spouse (or common-law partner) could invest $40,000 and withdraw the full value (including investment income and growth) tax-free to acquire their first home. Individuals can carry forward unused portions of their annual contribution limit up to a maximum of $8,000. Individuals can also transfer funds from their RRSP to an FHSA tax-free, subject to the $40,000 lifetime and $8,000 annual contribution limits.

The maximum participation period for an FHSA ends at the earliest of:

• 15 years after opening an FHSA;
• the end of the year following the year of the individual’s 70th birthday; and
• the end of the year following the year when the individual first makes a qualifying withdrawal from an FHSA.

Any funds remaining in the plan after the maximum participation period could be transferred tax-free into a RRIF or an RRSP without eroding contribution room. Otherwise, the funds will have to be withdrawn on a taxable basis.

Timing of opening an FHSA

A June 28, 2023 Advisor’s Edge article (How to properly plan the opening of an FHSA, Charles-Antoine Gohier) discussed the impact of individuals purchasing homes later in life on FHSA planning.

The article quoted a study from 2020 that estimated that the average age to buy a home in Canada is 36. If an individual opens an account at age 18, the plan must be closed no later than 15 years later, that is, when the individual is 33. If the individual contributes the annual maximum of $8,000 for the first five years to reach the maximum contribution of $40,000, assuming a 4.5% return, the balance of the FHSA would be $74,221 at the end of 15 years. If not used for a home, the individual must either withdraw the balance on a taxable basis or roll the balance into their RRSP on a tax-free basis. While rolling the FHSA into the individual’s RRSP does not erode their RRSP contribution room, no tax-free withdrawal would be possible for subsequent use of the funds to purchase a first home. Up to $35,000 could be withdrawn from the RRSP under the home buyers’ plan, but this would be subject to repayment conditions. Where sufficient funds are available in the RRSP, the home buyers’ plan can be used in conjunction with a tax-free FHSA withdrawal.

Home buyers’ plan (HBP)

In a May 15, 2023 French Technical Interpretation, CRA was asked whether an individual could withdraw $8,000 under the HBP and contribute the funds to a tax-free FHSA, knowing they would purchase a qualifying home the following month.

CRA first noted that the HBP and FHSA can be used for the same home purchase. Provided that the relevant requirements of both plans were complied with, the taxpayer could contribute the HBP withdrawal as a deductible FHSA contribution, then take a qualifying withdrawal from the FHSA in respect of the same home purchase.

This would be an alternative to rolling funds from the RRSP to the FHSA. Using the HBP approach would provide an immediate deduction for the FHSA contribution (a rollover would generate no deduction) but would also require the HBP withdrawal to be repaid to the RRSP in future years to avoid tax. The legislation does notimpose any minimum period that contributions must remain in an FHSA before being withdrawn to acquire a home.

Tax-free qualifying withdrawals
A May 23, 2023 Advisor’s Edge article (What are the FHSA qualifying withdrawal rules?, Rudy Mezzetta) discussed the conditions for a qualifying withdrawal.

The taxpayer holding the FHSA must be a resident of Canada at the time of withdrawal and remain so until the qualifying home is acquired.

The taxpayer must also have a written agreement to buy or build a qualifying home before October 1 of the year following the first qualifying withdrawal. Further, they must occupy or intend to occupy the qualifying home as a principal place of residence within one year after buying or building it. The article indicated that CRA had confirmed, in an email, that there is no minimum amount of time that the taxpayer must live in the qualifying home. The article also noted that if the acquisition of the home before October 1 of the following year was frustrated by unforeseen events, the taxpayer may have to provide evidence supporting their intent to occupy the property to avoid the withdrawal being subject to tax.

The individual must also be a first-time home buyer, defined as someone who has not owned or jointly owned their principal place of residence in the current year or any of the previous four years, to make a qualifying tax-free withdrawal. Unlike the requirements for opening an FHSA, home ownership by the individual’s spouse or common-law partner is not considered in the definition of a qualifying withdrawal. The individual may own the qualifying home for up to 30 days prior to the qualifying withdrawal and still be a first-time home buyer

ACTION: Consider whether opening up and contributing to an FHSA is an option for you or a family member.

In 2019, the government commenced a two-part enhancement to the Canada Pension Plan (CPP), with full implementation to be completed in 2025. Phase 1 occurred from 2019-2023; phase 2 will occur from 2024-2025. Overall, the changes will require larger contributions but also will provide larger benefits.

Pre-CPP enhancement

CPP contributions for employees and employers under the pre-enhancement CPP model (referred to as base contributions) were calculated as 4.95% of the employee’s pensionable earnings to a maximum of the year’s maximum pensionable earnings (YMPE; for 2023, $66,600), less the $3,500 basic exemption.

Phase 1

Referred to as the first enhanced CPP contributions, these are calculated as a percentage of the YMPE, less the $3,500 basic exemption, with the contribution rate for employees and employers gradually increasing from 4.95% in 2019 until it reached 5.95% in 2023.

Phase 2

Referred to as second enhanced CPP contributions, the contribution rate for employees and employers will be 4% but will only be applied to earnings above YMPE up to the yearly additional maximum pensionable earnings (YAMPE) ceiling. For 2024, YAMPE will be set at a number 7% higher than YMPE, estimated at $72,400. For subsequent years, YAMPE will be 14% higher, estimated at $79,400 for 2025.

The rates discussed above apply separately to both the employer and employee. Where the individual is self-employed, they are responsible for both the employer and employee contributions.

The payout

The enhanced portion of CPP payouts will only be available to those who contributed since the enhancements were introduced in 2019. Employees that have fully participated under the enhanced contribution regime for sufficient years will receive maximum retirement benefits set at 33% of pensionable earnings, whereas benefits under the pre-enhancement regime would be 25%.

ACTION: Employers, employees and self-employed individuals should all be aware that the costs of the CPP will continue to increase as the changes are fully phased in. Individuals should be aware that their take-home pay may be reduced, and employers should budget for these higher costs.

A January 11, 2023 BC Civil Resolution Tribunal case addressed a claim for wrongful dismissal. The employer filed a counterclaim in respect of a 50-hour discrepancy between the employee’s timesheets and tracking software data over a period of about a month during which the employee was working remotely.

The employee argued that significant hours were spent working from hard copies; however, this was rebutted by records of printer usage and a lack of evidence of such work being uploaded to the employer’s electronic system. The Tribunal accepted the software evidence of time theft, and indicated that this was a “very serious form of misconduct” which justified the employee’s dismissal. The Tribunal further awarded the employer damages of over $2,600, plus interest, for the unaccounted-for time and an unrepaid advance.

The Canadian Federation of Independent Businesses (CFIB) released a report on January 10, 2023, focused on succession expectations for small businesses. It included the following survey responses:

• 76% of small business owners (constituting $2 trillion in business value) are planning to exit their business in the next 10 years;
• 9% have a formal business succession plan in place;
• obstacles to succession planning include:
• finding a suitable buyer (54%),
• business valuation (43%), and
• over-reliance of owner in day-to-day activities (39%);

considerations that owners selling their businesses found to be very or somewhat important were:

• ensuring current employees are protected (90%),
• getting the highest price (84%), and
• finding a buyer who will carry forward their way of doing business (84%)
• business owners reach out to the following individuals to develop a succession plan:
• accountants (43%),
• lawyers (24%), and
• only themselves (39%);
• business owners plan to sell to the following persons:
• unrelated buyers (49%),
• family members (24%), and
• employees (23%).

There are many hurdles and opportunities in selling a business. Many can be addressed in advance, leading to significant improvements in the sale process and an increase in sale price. Often, several years are needed to position the business for sale or transition sufficiently, so planning should start as early as possible, even if the owner has not definitively determined if and when the sale will occur. In many cases, simply preparing for a sale can lead to increased profitability, efficient processes and reduced stress for the owner, such that they are in a better position even if they eventually decide not to sell.

In a January 23, 2023 French Court of Quebec case, a commissioned salesperson deducted nearly $600,000 over 2015 and 2016, in sponsorship expenses of a professional cycling team in Canada. The individual was an investment advisor and reported commission income of $1,493,910 and $1,263,360 and taxable capital gains of $2,276,374 and $99,767 in the respective years.

The taxpayer argued that the sponsorship promoted his services as an investment advisor. As the main sponsor of the cycling team, the taxpayer explained that he benefited from enhanced visibility, as follows:

• the taxpayer’s name was in large letters on the front of the cyclists’ jerseys, on both sides of the cyclists’ shorts and on the team’s cycling shoes;
• the investment institution’s name and logo were on both the front and back of the cyclists’ jerseys; and
• the team’s website (silberprocycling.com) incorporated the taxpayer’s name (Silber) into the website domain.

The Court noted that neither the taxpayer nor any of his family members benefited from the cycling team’s equipment, advice or products.

The Minister argued that the sponsorship expenses
were unrelated to the taxpayer’s employment as a commissioned salesperson and that the expenses were unreasonable.

Taxpayer wins
The Court found a sufficient link between the advertising from the sponsorship and the taxpayer’s investment advisory services from which he generated his commission income. In addition, the Court opined that the taxpayer’s sponsorship expenses constituted a much lower portion of his total income (e.g. 5% for 2015) than in other cases. For example, in a 2010 case, the Court found that employment expenses constituting 65% of the taxpayer’s income were reasonable. The deduction was allowed.

Editors’ comment

The scope of deductible commission employment expenses is much broader than for non-commission employment expenses. Expenses incurred to earn commission income are deductible provided that they are not specifically prohibited (for example, personal expenses or payments that reduced a taxable employment benefit) and provided that the other standard conditions for deduction are met. In contrast, only expenses specifically listed as deductible in the Income Tax Act can be deducted against non-commission employment income.

ACTION: The rules surrounding deducting expenses against employment earnings are complicated. Care should be afforded before incurring expenses intended to be deducted against employment income.

Traders or dealers in securities must report to CRA the disposition of securities, such as publicly traded shares, mutual fund units, bonds and T-bills, of their clients on a T5008. A November 4, 2022 French Federal Court case summarized CRA’s administrative policy where a taxpayer has not filed a tax return, but a T5008 was issued, reporting the disposition of property that does not include the cost of the property disposed. In this case, CRA will assess the taxpayer with unreported income by estimating the capital gain to be a percentage of the total proceeds of disposition based on the stock market performance for the year in question (details on how the calculation was made were not provided in the Court case).

In 2015, CRA applied this policy and assessed the taxpayer for his 2008 year with a $967,806 capital gain (taxable capital gain of $483,903) computed as 20% of all proceeds of disposition reported on the T5008. CRA assessed the taxpayer’s income for 2009 at $141,798. The taxpayer did not object to either of these assessments.

In 2019, the taxpayer filed his 2008 and 2009 returns reporting much lower income than CRA had assessed in 2015. As the 2008 return was filed (essentially requesting adjustments to the original assessment) more than 10 calendar years after the end of the year (December 31, 2008), no adjustments could be made to this year. The taxpayer relief provisions only allow an individual to request an adjustment up to ten calendar years after the relevant year. As such, CRA confirmed their 2015 assessment.

The taxpayer then tried to argue that the excess of capital gains assessed by CRA over his actual gains for 2008 should be treated as a capital loss carried forward to offset his gains realized in 2009. CRA refused to reassess the 2009 return for this adjustment.

Taxpayer loses
The Court found that the taxpayer could not indirectly reduce the impact of the capital gain on his 2008 return by claiming a capital loss on his 2009 return.

Editors’ comment

It is typical for brokers not to include the cost base of securities disposed on the T5008 as they may not have the accurate information. Also, even if an amount is reported on a T5008, the transaction may not always result in a gain; some dispositions may be in a loss or break even position. For example, money market fund dispositions are often reported; however, there is normally no gain or loss.

ACTION: Ensure to report all gains from the disposition of securities fully; should dispositions not be reported, CRA may assess the taxpayer with unreported income much higher than the actual gain.

UHT is a 1% federal tax intended to apply to the value of vacant or underused residential real property owned by non-resident non-Canadians. However, many Canadian individuals and other entities are also required to file UHT returns and may even be liable for the tax. Numerous exemptions from the tax itself exist, but significant penalties can apply where the required return is not filed, even if no tax is payable.

UHT was first applicable to the 2022 year, with the first filing deadline being April 30, 2023. However, CRA recently announced (March 27, 2023) that penalties and interest for the 2022 calendar year will be waived for any late-filed UHT return and any late-paid UHT payable, provided the return is filed or the UHT is paid by October 31, 2023. The late filing penalties start at $5,000 for individuals and $10,000 for corporations.

In general, UHT returns must be filed by all persons (which include both individuals and corporations) that are on title of a residential property on December 31of each year, unless that person is an excluded owner. No tax is applicable if there is no filing obligation.

From an individual perspective, the only excluded owners are Canadian citizens and permanent residents. However, individuals that are on the title of a property in their capacity as a trustee of a trust, or a partner of a partnership, cannot be excluded owners, even if they are Canadian citizens or permanent residents.

From a for-profit corporate perspective, the only excluded owners are public corporations (i.e. listed on a Canadian stock exchange). That is, a private Canadian corporation is not an excluded owner.

Even if a filing obligation exists, an owner may still benefit from one of fifteen exemptions from the tax liability. The exemptions broadly fit into four categories: type of owner; availability of the property; occupant of the property; and location and use of the property. Even though the exemption eliminates the tax, the person still has a filing obligation. The exemptions are listed in Parts 4 through 6 of the UHT Return and Election Form (UHT-2900).

Some of the more common questions and concerns related to the UHT are noted below.

• Is my property a “residential property”?

In general, a “residential property” is a property that contains a building with one to three dwelling units under a single land registry title. A unit is considered a dwelling unit if it contains private kitchen facilities, a private bath and a private living area. CRA provides various examples of properties that they view as residential properties in Notice UHTN1, such as: detached houses, duplexes, laneway houses, condominium units and cabins. Apartment buildings, commercial condominiums, hotels and motor homes would not be residential properties. Properties provided through accommodation platforms are likely residential properties (see Notice UHTN15).

How would an income-earning property (such as an Airbnb property or long-term condo rental) that is held by two or more individuals, such as a married couple, be treated?

Although both individuals may be Canadian citizens or permanent residents, there is a possibility that the property is being held in their capacities as partners of a partnership. In that case, the individuals are not excluded owners. The analysis generally starts with determining whether the operating relationship for the income-earning activity constitutes a partnership, which can be complicated. In general, a partnership is a relationship between two or more people carrying on a business, with or without a written agreement, to make a profit. See Notice UHTN15 for guidance.

• A parent or child is on title of a property for probate or mortgage purposes.

Where a person is on title but is not a beneficial owner (such as where a relative is on title only for probate or mortgage purposes), they may be holding an interest in the property in their capacity as a trustee of a trust, even if no formal trust agreement is in place. As such, filing may be required even if the individual is a Canadian citizen or permanent resident.  Professional advice may be required.

• Properties sold before year-end.

UHT may apply in respect of a property sold prior to December 31 if the applicable land title registry has not been updated by the year’s end.

• Multiple returns to file.

One return must be filed for each of the properties owned by the person, potentially resulting in multiple filings by a person. Likewise, if multiple persons are on title for a single property, each has their own filing obligation.

• Private corporations that own residential property.

Most private corporations that are on title of a residential property will have filing obligations, even if they are holding the property in trust and even if they are exempt from the tax liability.

• Owner of residential property passes away.

Usually, some time is needed to transfer title of a property from a deceased person to a beneficiary or executor/trustee of an estate. In cases where an individual has died but is still on title of the property, a filing obligation may still exist. However, if the owner was an excluded owner before their death, CRA has indicated that they will continue to consider them excluded after death. Where the property title has been transferred to a personal representative of the deceased (such as an executor), a special provision applies which allows the new holder to be an excluded owner for a limited period even though they are holding the property in their capacity as a trustee.

ACTION: Consider whether you or your corporation may have UHT filing or tax obligations.

Budget 2023 (A Made-in-Canada Plan: Strong Middle Class, Affordable Economy, Healthy Future) was introduced in the House of Commons on March 28, 2023. The top five changes that may impact individuals and owner-managed businesses are as follows:

• Dental plan – The Canadian Dental Care Plan would be introduced to provide coverage for all uninsured Canadians with an annual family income of less than $90,000 (the previous Canada Dental Benefit only provided benefits for children under 12) by the end of 2023. Benefits would be reduced for families with income between $70,000 and $90,000.
• Green investments – New and expanded green investment tax credits for businesses, including for clean electricity at 15%; clean hydrogen ranging from 15% to 40%; clean technology manufacturing at 30%; and expansion of the clean technology investment. Labour requirements, including wage levels and apprenticeship training opportunities, would need to be met to receive the full amount for most business credits.
• Intergenerational business transfers – In the summer of 2021, rules were introduced that allowed individuals to benefit from the sale of their corporation to a child’s corporation in the same way as a sale to a third party. Previously, such transfers to a child’s corporation would result in a capital gain being converted into a more highly taxed dividend and also prevent the usage of the capital gains exemption. Budget 2023 proposed amendments to limit the 2021 rules by adding specific eligibility requirements focused on the transfer of ownership, management and control of the business. The proposals would take effect in 2024.
• Employee ownership trusts (EOTs) – Rules were proposed to better facilitate employees buying their employer through a trust. Proposed to be effective in 2024, these rules would provide business owners with an additional exit strategy, where for example, a third-party buyer or transition to a family member is not feasible or desired.

Alternative minimum tax (AMT) – The AMT is an alternative method of calculating taxes that ensures that an individual pays a minimum amount of tax even if they would not have a tax balance under the normal system due to using one or more tax advantages. Budget 2023 proposed to modify the AMT rules to better target wealthier individuals. The standard exemption from this tax would be increased from $40,000 to approximately $173,000; however, the tax rate would be increased from 15% to 20.5%. In addition, many of the deductions and credits currently allowed to reduce AMT would be eliminated or restricted. These changes would be effective for the 2024 tax year.

ACTION: If you are significantly affected by, or could benefit from, any of these changes, reach out for more information and assistance.

A November 25, 2022 French Tax Court of Canada case considered whether a taxpayer’s poker activity constituted a source of business income and therefore the winnings were taxable, as argued by CRA. The taxpayer argued that his winnings were non-taxable as they were derived from his hobby rather than a business. The taxpayer generated poker winnings each year from 2008 to 2011, ranging from $156,855 to $573,882.

Taxpayer loses

Where an activity can be considered both a hobby and a business, the Court will examine whether it is carried on in a sufficiently commercial manner. If carried on in a sufficiently commercial manner, the activity would be from a business and therefore proceeds taxable. The Court analyzed various elements of the taxpayer’s gambling activities, noting the following.

• The taxpayer’s activities were much more than entertainment; he played for a living. It was his sole source of income and he devoted almost all of his time to it. Although the taxpayer reported to CRA that he only played 10 hours per week, CRA was able to demonstrate that he was playing over 50,000 hands per month at a rate of 765 hands per hour, averaging over 30 hours/week for at least two of the years in question.
• The taxpayer had demonstrated over the four years an ability to make profits on a consistent and regular basis even though he could not predictably control each specific game. The purchase of a residence in Quebec and a condo in Florida indicated confidence in his ability to generate income.
• Despite an unusual lifestyle (frequent parties and travelling), he behaved like a serious businessman by, for example:
  • using various strategies depending on table limits and strength of opponents;
  • playing high volumes of games at low-limit tables against weaker players;
  • using software that provided information on the tendencies of opponents;
  • tracking and analyzing his own monthly statistics;
  • buying and selling shares of player entries in large poker tournaments (such as a 5% purchase in Jonathan Duhamel’s 2010 world poker championship win); and
  • constantly reinvesting a portion of winnings into gambling.

The Court found that the taxpayer “had a subjective intention to make a profit, and that he used his expertise and ability to earn a living in poker, a game of chance where skill is a strong consideration.” Therefore, the earnings were taxable as business income. Further, the Court noted that this result was not inconsistent with another recent poker winnings case in which the much larger winnings were not considered taxable. The results in that case were different as, although the evaluation criteria were the same, the facts were different.

ACTION: Earnings from gambling and hobbies may be taxable depending on the intention and circumstances surrounding the earnings. If in doubt as to the tax status, consult a tax advisor.

A one-time tax-free payment of $500, announced in September 2022, is now available to low-income renters. The payment does not reduce other federal income-tested benefits.

Eligible individuals must:

• be 15 years of age or older on December 1, 2022;
• be resident in Canada for tax purposes in 2022;
• have filed their 2021 tax return with adjusted net income below $35,000 for families or $20,000 for individuals. If the individual has a spouse or common-law partner, they must have also filed the return. Eligible individuals that were non-residents in 2021 will need to submit a 2021 statement of income;
• have paid rent for their principal residence in calendar 2022 equal to at least 30% of the applicant’s adjusted family income.

Applicants must provide the address of the rental property, the total rent they paid in 2022, and the landlord’s contact information. Applications can be submitted until Friday, March 31, 2023 through CRA’s My Account, an online application Form, or by phone (1-800-282-8079).

ACTION: While this benefit may not be available to you personally due to income levels, it may be available to lower-income adult children or family members.