For the full interview please listen to The CM Group- Free Lunch Podcast, Episode 139 “Talk’n Taxes with Jamie Golombek”
Colin and Greg: Why don't we just kick this off? It's a New Year, thank goodness, I think on many fronts. But tax planning for 2022 is now in the can and we're looking at tax planning for 2023. So maybe let's just kick it off by talking maybe a little bit about what's changed since last year, what's new for this year, Jamie?
Jamie: Is there a lot of changes? There are a few things, obviously, that we could talk about today, but probably the biggest change is what's on everyone's mind is inflation. Recent numbers showing inflation around 6.3%. From a federal tax perspective, we actually had full indexation of the tax brackets federally for 2023, and that basically means that we have five federal tax brackets that go right up to 235,000. All those brackets were effectively indexed for inflation by 6.3%. So even if your income stayed completely flat from 2022 to 2023, you'll actually paying a little bit less tax because the amount of income that's captured in that particular bracket will be less as long as you're not obviously at the top rate. So in other words, effectively, most people will see if your income is flat, a slight reduction in taxes simply because the brackets themselves have been indexed on inflation. So I think that's probably the biggest change for 2023. Couple of other things. There's a new credit for this year that might apply to some people. That is, for example, you have perhaps a family member that is over 65 or perhaps a family member with a disability and you want to renovate your home to make it accessible, to make it livable for that relative to move in with you brand new for 2023 is the multigenerational home renovation credit, and that's worth 15% up to $50,000 of qualifying renovations. And I guess the only other big news we can talk about, this a little bit later, is of course the brand new registered plan, the first home savings account from the FHSA, and that's expected to launch as soon as April 1st, 2023. That will allow Canadians who are considered to be first time homebuyers an opportunity to save on a tax deductible basis up to $8,000 a year or $40,000 over five years, save it for up to 15 years in a completely tax sheltered account and then take all that money out tax free to buy a first home. So it combines the benefits of an RRSP, which gives you a tax deduction with the tax free growth and the tax free withdrawal that you get from a TFSA. So those are kind of my three big news items. We can obviously expand on them, but those are the big items, not a lot of other changes for 2023.
Colin and Greg: So they've just taken the first time homebuyers plan from the RRSP and married it with a tax free savings account strategy? Is that how you describe that? I don't quite get it.
Jamie: Sort of. I mean, the good news is actually you can use both. Originally in the legislation, you had to choose one or the other. So as you point out, there is an existing plan. The existing plan is called the Home Buyers Plan, which is available to first time home buyers, which allows each person who is a first time home buyer to withdraw $35,000 tax free from an RRSP. The difference is that it must be paid back within 15 years. And if you don't pay it back within 15 years, you include the amount you don't pay back in your income for that particular year. The new plan, the first home savings account, is the opportunity to put in an additional $8000 a year on top of any RRSP contribution limit that you have or perhaps don't have because you're part of a pension plan, you have a pension adjustment. So it's giving everyone another $8,000 of room for up to five years, $40,000. You get a tax deduction for that. You get to grow that tax free for up to 15 years and should you buy a home within 15 years, you can take out not just your $40,000 of contributions but all the income and growth completely tax free to use it as a down payment for a home. And you can use this in conjunction with or in addition to the homebuyers plan that we just talked about.
Colin and Greg: And when you look at it then, so $40,000 plus growth plus possibly up to $35,000 from the RRSP, that's getting to a point where it could actually take care of a down payment. With average home prices in the $600,000 range, people are looking at it pretty sizable down payment even on a first home.
Jamie: Actually, if you're married or living common law and you each qualify, you can double those numbers. That's $40,000 each and $35,000 each. Ignoring any growth in the FHSA it could be a substantial down payment for a first time homebuyer.
Colin and Greg: For subscribers to this plan is at 18 years and older. Is that the way this plan is set up?
Jamie: Absolutely. So you've got to be at least 18 years of age or older to participate in the plan. You obviously must be a resident of Canada. You have to meet that definition of a first time homebuyer. And that is something that we've had in the Income Tax Act for a while now. Ever since the introduction of the Home buyers plan, all it means is that you didn't own a home in the current year in the previous four calendar years. So you might have owned the home years ago. Maybe you sold it, maybe you're renting right now. But you cannot have owned a home in the current or previous four calendar years.
For more questions and answers with Jamie Golombek please refer to our Podcast.
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