Our tax specialists would like to share with you a number of tax-related information of interest to you and your company. The purpose of this article is to help you optimize the close of your 2023 tax year and plan for the year ahead.
Alternative minimum tax (IMR)
The Alternative Minimum Tax (AMT) is a measure designed to ensure that high-income taxpayers pay a minimum share of tax. This AMT generally applies when using advantageous tax programs such as the capital gains deduction and the dividend tax credit.
When the tax return is filed for the year in question, two tax calculations are made simultaneously: the tax payable under the regular rules and the AMT. Taxpayers then pay the higher of the AMT and the regular tax. The AMT paid for one year may reduce taxes payable for the following seven years, provided the taxpayer has taxable income. AMT not recovered in the following seven years is lost. It will be important to analyze the various strategies for recovering the AMT, since some types of taxable income do not allow sufficient recovery of the AMT.
Also, as of January1, 2024, changes will apply to broaden the AMT base. Certain types of income will now be heavily affected by the changes, notably taxable capital gains. As a result, an AMT may be required on the sale of capital assets, such as rental property, investments, land, etc., as well as on the sale of real estate.
Capital cost allowance (CCA)
Companies have until December 31, 2023 to acquire assets qualifying for additional depreciation than that normally provided for by the Act. The rules governing additional depreciation are as follows:
- Accelerated capital cost allowance: takes 1.5 times the depreciation that could normally be claimed in the first year.
- Additional capital cost allowance: Allows a 30% deduction of the capital cost allowance claimed in the previous year on eligible new computer equipment and manufacturing and processing equipment.
- Immediate expensing: allows you to claim up to $1.5 million in depreciation expense in the same year on eligible assets.
As of January1, 2024, these rules will no longer apply. As of 2024, the only remaining depreciation measure is the abolition of the half-rate in the year of acquisition. This measure will expire in 2027.
Investment and innovation tax credit (C3i)
The C3i is a refundable tax credit in Quebec designed to encourage certain companies to invest in manufacturing and processing equipment, universal electronic data processing equipment or management software packages.
As of January1, 2024, the applicable rates will change. It is important to analyze when the property was acquired in order to determine the rate applicable to the acquisition.
C3i rates by territory and time of acquisition :
| Rates applicable after March 25, 2021 and before January1, 2024 | Applicable rates after December 31, 2023 and before January1, 2030 | |
Territory with low economic vitality | 40% | 25% |
| Territory with intermediate economic vitality | 30% | 20% |
| An area of high economic vitality | 20% | 15% |
Repay advances to your company on time
When a company lends a shareholder an amount of money, the loan must be repaid within the statutory timeframe, in order to comply with the two-balance-sheet rule, which means that the loan must not appear on two consecutive balance sheets. If the amount has not been repaid within the prescribed time, the shareholder must be taxed on the amount loaned by the company in the year the loan was made, and file amended tax returns. However, care must be taken in the case of a series of successive loans and repayments.
The Act also provides that a shareholder who receives a loan from his or her corporation must include in income a taxable benefit for interest, to the extent that the prescribed interest rate exceeds the interest rate of the loan. In this case, a taxable benefit will be calculated from the amount loaned multiplied by the quarterly prescribed rate.
| Prescribed rate | |
Fourth quarter of 2023 | 5% |
Third quarter of 2023 | 5% |
| Second quarter of 2023 | 5% |
| First quarter of 2023 | 4% |
Trusts
New disclosure requirements will apply to trusts for taxation years ending on or after December 31, 2023. These new requirements require, among other things, disclosure of the identity of trust stakeholders, including trustees, beneficiaries and settlor. The new requirements should apply to most Canadian resident trusts, as well as to non-resident trusts that currently have an obligation to file a trust income tax and information return. At the federal level, failure to comply with these new requirements could result in penalties calculated on the greater of $2,500 and 5% of the value of the trust’s assets during the year, valued at fair market value. In Quebec, the penalty is $1,000, plus $100 per day of default, to a maximum of $5,000.
The members of our tax team remain available to assist you, and hope you find this tax information useful.
To continue reading :
