Category: Tax

April 15, 2026

Asset Location: Where You Invests Matters as Much as What You Invest In
How aligning investments and taxes can improve long-term, after-tax outcomes.

• What you earn isn’t always what you keep: Positioning assets across RRSPs, TFSAs, and taxable accounts can meaningfully affect after-tax returns.
• Match investments to account type: Hold fixed income in tax-deferred accounts; use taxable accounts for Canadian equities; reserve TFSAs for long-term growth.
• Rebalance with tax awareness: Burkett helps clients preserve efficiency and strengthen long-term portfolio outcomes with a disciplined, tax-integrated approach.

Building an effective portfolio requires more than selecting the right investments, it requires placing them in the right accounts. How assets are positioned across account types (e.g. non-registered, RRSP, TFSA, etc.) can meaningfully impact long-term after-tax outcomes. At Burkett, tax considerations are integrated directly into portfolio decisions as a core part of how we manage wealth.

• Not all income is taxed equally: Interest income, dividends, and capital gains are treated differently, which creates opportunities
• Not all account types are taxed equally: TFSAs provide tax-free growth, RRSPs defer tax until withdrawal, and non-registered accounts are taxed annually based on the type of income earned

A decision with a lasting impact
Portfolio discussions begin with asset allocation, what percentage of your portfolio to hold in equities versus fixed income. That decision drives what a portfolio earns. Asset location determines how much of that return is retained after tax. For clients with a mix of RRSPs, TFSAs, and non-registered accounts, thoughtful asset location becomes critical to maximizing after-tax wealth.

Asset location is treated as an integral part of portfolio construction, applying a consistent, disciplined approach aligned with each client’s broader financial picture.

How Canadian tax rules shape asset location
Different types of investment income are taxed differently in Canada, which drives asset location decisions:

• Interest income and foreign income are taxed at higher marginal rates
• Canadian dividends benefit from the dividend tax credit
• Capital gains are subject to 50% inclusion on realized gains, while unrealized gains are not taxed

These differences create a hierarchy of tax efficiency, but effective implementation requires judgment.

Fixed income is the least tax-efficient asset class, while Canadian equities tend to be more favourable in taxable accounts due to the dividend tax credit. U.S. and international equities, which generate foreign income, are better suited to registered or TFSA accounts where that income is not taxed annually.

In practice, these principles guide how we structure portfolios:

• RRSPs and other tax-deferred accounts are typically used for fixed income and other tax-inefficient assets
• RESPs/FHSAs should also hold fixed income, particularly where shorter time horizon considerations are relevant
• TFSAs typically reserved for higher expected return assets, where tax-free long-term growth is most valuable, often including international equities
• Non-registered accounts are often used for Canadian equities and long-term equity exposure to benefit from tax efficiencies

Rebalancing vs. tax efficiency
One area where trade-offs arise is in portfolio rebalancing. Registered accounts such as RRSPs and TFSAs allow for trading without immediate tax consequences, which makes them useful tools for maintaining target allocations through regular rebalancing. Some approaches emphasize using these accounts primarily as “rebalancing centres” shifting assets between accounts to avoid realizing gains in taxable portfolios.

At Burkett, we prioritize maintaining appropriate asset location first and then implement rebalancing in a way that minimizes unnecessary tax realization. This typically follows a hierarchy:

1. Use contributions, withdrawals, and cash flows
2. Rebalance within registered accounts
3. Use taxable trades only when necessary

This approach helps preserve tax efficiency while still maintaining portfolio discipline.

Where active management style fits
At Burkett, portfolios are actively managed with tax awareness in mind. This includes how we allocate across asset classes, but also how we select and manage individual securities.

For example, within fixed income, we may use different types of bonds depending on yield, tax treatment, and client circumstances. In taxable accounts, preferred shares may play a role given their dividend characteristics. Across portfolios, we may also realize losses opportunistically, particularly toward year-end, to offset gains where appropriate.

These decisions are not made in isolation. They are part of a broader effort to manage after-tax outcomes over time, rather than focusing solely on pre-tax returns.

A practical, disciplined approach
Research suggests that optimal asset location can be sensitive to assumptions about returns, tax rates, and investor behaviour. Rather than relying on complex optimization, we believe there is value in applying clear, durable principles.

Our approach is grounded in:

• Placing tax-inefficient assets in registered accounts where possible
• Using taxable accounts for more tax-efficient equity exposure
• Reserving TFSA space for long-term growth
• Implementing rebalancing in a tax-aware manner

Ultimately, consistency is more important than precision. Over time, avoiding unnecessary tax drag can contribute meaningfully to long-term outcomes.

The bottom line
Asset location isn’t a one-time decision. It’s an ongoing strategy that helps investors keep more of what they earn.  A consistent tax-integrated approach, supported by Burkett’s disciplined process, can meaningfully enhance after-tax results.

If you have any questions about how asset location strategy can help you meet your financial goals, constraints, and evolving circumstances, please don’t hesitate to reach out.

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References:

1. Dammon R., Spatt C., & Zhang H., (2004, June). Optimal Asset Location and Allocation with Taxable and Tax-Deferred Investing
2. Bender, J., & Bortolotti, D. (2014, April). Asset Location – Key Concepts

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Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investment strategies involve risk, including the risk of loss. Past performance is not indicative of future results. Investment decisions should be made based on individual circumstances and in consultation with a registered advisor. The historical data referenced is for illustrative purposes only, to help frame potential trade-offs between different implementation approaches, and should not be interpreted as predictive or prescriptive.

November 6, 2025

On November 4, 2025, the federal government released its latest budget, outlining several tax and policy changes that will affect individuals and businesses in the coming years. Below is a brief overview of a few key tax measures.

Bare Trust Reporting Rules
The budget defers the implementation of the new trust reporting rules for bare trusts to apply to taxation years ending on or after December 31, 2026. These rules were originally proposed on August 15, 2025, and requires trustees of bare trusts to file annual T3 returns, even where no income is earned.

Underused Housing Tax (UHT)
The budget proposes to eliminate the UHT beginning with the 2025 calendar year. As a result, no UHT will be payable and no UHT returns will be required for 2025 and subsequent calendar years. All UHT requirements, including filing obligations, penalties, and interest, will continue to apply for the 2022 through 2024 calendar years.

Immediate Expensing for Manufacturing and Processing Buildings
The budget introduces a temporary measure allowing businesses to immediately expense the full cost of eligible manufacturing and processing buildings. To qualify, at least 90 percent of the building’s floor space must be used for manufacturing or processing. This measure applies to property acquired on or after November 4, 2025, and first used before 2030. The deduction will gradually phase out after 2030 and be eliminated after 2033.

Luxury Tax on Aircraft and Vessels
The budget ends the luxury tax on subject aircraft and subject vessels. This tax will cease to be payable after November 4, 2025, including the tax on sales, importations, and improvements. Registered vendors must file a final return covering the reporting period that includes Budget Day, and all related registrations will be automatically cancelled on February 1, 2028.

Home Accessibility Tax Credit
The budget introduces a clarification to ensure that an expense claimed under the Medical Expense Tax Credit cannot also be claimed under the Home Accessibility Tax Credit. This measure applies to the 2026 and subsequent taxation years. Individuals planning to make accessibility renovations may wish to complete those projects before the end of 2025 in order to benefit from claiming both credits under the current rules.

If you have any questions in respect to the changes to electronic payment requirements, please click here or contact our Tax Manager Brad Grsic at (250) 370-9178.

March 31, 2025

By providing advance notice, the government effectively lit a starting pistol for investors: sell now or face a higher tax later. And sell they did… The result was a short-term windfall for Ottawa.

Was it just a cynical shell game?

Last year, Prime Minister Justin Trudeau announced a major capital gains tax hike, only to delay its implementation — a move that triggered a flurry of asset sales before the higher tax could take effect. That maneuver temporarily swelled federal coffers and made the 2024–25 fiscal outlook appear stronger, although Trudeau is no longer around to capture the political benefits.

As it turns out, his successor, Mark Carney, has been able to swoop in and campaign in Canada’s snap election on the back of reversing the very same tax hike. This sequence — proposal, delay, revenue spike, and cancellation — raises serious questions about the Liberal Party’s credibility on tax fairness and economic stewardship. And it adds a thick layer of irony that Mr. Carney, in his previous role at investment giant Brookfield, reportedly helped position tens of billions in green investment funds through offshore tax havens like Bermuda — a practice that appears starkly at odds with the Liberal campaign’s rhetoric on corporate taxation and fairness.

In April 2024, the Trudeau government unveiled plans to raise the capital gains inclusion rate — the portion of profit from asset sales that is taxable — from 50% to 66.7% for individuals and businesses earning over $250,000 in gains annually. The change, part of the spring budget, was set to take effect on June 25, 2024. By providing advance notice, the government effectively lit a starting pistol for investors: sell now or face a higher tax later.

And sell they did.

In the weeks leading up to the June deadline, Canadians rushed to lock in gains under the lower rate. Some sold off stocks, others divested investment properties — even treasured family cottages — to beat the looming hike. The result was a short-term windfall for Ottawa. Capital gains that might otherwise have been realized gradually over years were instead pushed into a single quarter.

In fact, the prospect alone of the June 25 change was projected to generate C$10.3 billion in additional revenue over two fiscal years — an eye-popping sum from a tax policy that, in the end, was never enacted. This fire-sale effect temporarily inflated federal revenues and painted a rosier picture of the Liberals’ fiscal management than reality would suggest.

Critics say this was no accident.

“It was used to plug a fiscal hole, not because there was some grand strategy on tax policy,” said Sahir Khan, of the University of Ottawa’s Institute of Fiscal Studies and Democracy, pointing to the $20 billion budget overshoot from the previous year.

It was a play that appears unprecedented, potentially financially reckless—and, in the context of Canada’s high-stakes snap election—perhaps politically manipulative. On the face of it, this gambit provided short-term budgetary relief—a sugar high for Ottawa’s ledgers—while any pain would be borne by Canadians cashing out investments early or by future governments left with a revenue hole once the rush subsided.

To better understand the economic impact, I reached out to Victoria-based fund manager Kevin Burkett, whose firm Burkett Asset Management manages $500 million and advises Canadian clients.

“Most major tax changes announced in a federal budget take effect immediately to prevent taxpayers from planning around them,” Burkett told me. “However, this budget introduced a nine-week delay, widely seen as an opportunity to sell assets before higher tax rates applied. In reviewing both the benefits and risks with our clients, those who chose to sell early are understandably frustrated by recent announcements as they’ve now prepaid taxes unnecessarily.”

I asked Burkett whether these circumstances—the abrupt reversal of tax policy and the politics surrounding it—might linger in ways we can’t yet foresee. Has some deeper confidence been shaken?

He measured his words carefully.

“Emphasis on enforcement in tax compliance overlooks the critical role of perceived fairness in maintaining trust in the system,” the British Columbia-based financial manager told me. “In recent years, last-minute policy changes, seemingly political, risk undermining this fairness and eroding confidence in the integrity of tax policy.”

Good-Faith Voters Left Holding the Bag

What about those Canadians who heeded the government’s signals? Consider the family that sold a cherished vacation property, or the entrepreneur who offloaded company shares pre-emptively to avoid a looming tax hike. Now, they find that the increase was never actually enforced. Incoming Liberal leader (and Prime Minister before the campaign writ was dropped) Mark Carney confirmed in early 2025 that the capital gains changes would not move forward at all.

Meanwhile, Ottawa has already happily counted the extra tax revenue generated from their asset sell-offs. It’s hard to escape the conclusion that these Canadians were sacrificial pawns in a larger power play. On March 21, 2025, Carney’s office formally announced the cancellation of the proposed increase to the capital gains inclusion rate, framing the reversal as a pro-investment, pro-entrepreneurship decision: “Cancelling the hike in capital gains tax will catalyze investment … and incentivize builders, innovators, and entrepreneurs,” he said.

The political subtext was clear: the new leader was distancing himself from an unpopular Trudeau-era policy, aiming to boost Liberal fortunes ahead of an election. And boost he did—polling immediately ticked upward for the Liberals once the tax hike was shelved. Carney got to play the hero, scrapping a “widely criticized” proposal and casting himself as a champion of the business class.

Yet, conveniently, he also inherited the short-term fiscal boost Trudeau’s gambit had generated. In effect, Trudeau’s delayed tax hike handed Carney a double win: healthier-looking federal revenues in the near term, and the credit for killing the tax before it ever touched taxpayers. If that sounds orchestrated, it’s because the sequence of events feels almost too politically perfect.

Add this to the layers of irony.

Carney’s rise to the Liberal leadership was accompanied by lofty rhetoric about restoring trust and fairness—including tax fairness. It’s a bit rich, though, considering Carney’s own track record in the private sector on that very issue.

Before entering politics, Carney served as a vice-chair at Brookfield Asset Management, a global investment giant, where he co-led the firm’s expansion into green energy. Notably, as CBC reported this week, Carney personally co-chaired two massive “Global Transition” funds at Brookfield—one launched in 2021 and another in 2024—aimed at financing the shift to a net-zero economy. These projects became marquee pillars of “Brand Carney,” amassing roughly $25 billion from global investors and touted as a major effort to mobilize capital for the climate cause.

The financial structure of these funds tells a less high-minded story. According to documents obtained by Radio-Canada, both Brookfield Global Transition Fund I ($15B) and Fund II ($10B) were registered in Bermuda—a jurisdiction long synonymous with offshore tax advantages. In plainer terms, Mark Carney helped set up green investment vehicles that avoided the very tax burdens average Canadians shoulder.

The same kind of burdening and unburdening that defined Trudeau’s capital gains rug-pull now shadows Carney’s buoyant election campaign, which has gained momentum by adopting policy positions first championed by Pierre Poilievre. Poilievre vowed to undo Trudeau’s unpopular left-wing policies—the very ones Carney now pledges to reverse, despite their origins in his own party.

Canadians would be wise to remember the tax reversal. Fool me once, as the saying goes.

March 31, 2025

Many Canadians who rushed to sell assets that had appreciated last year to get ahead of Ottawa’s proposed hike to the capital gains inclusion rate may be worse off financially now that the federal government has abandoned the measure.

Clients who disposed of assets before June 25, 2024, the original effective date for the hike to the inclusion rate, effectively pre-paid taxes, incurred professional advisory costs and may have even exposed themselves to the alternative minimum tax (AMT) or the loss of benefits if they reported significant income in 2024 after triggering capital gains early.

“Vast numbers of clients took action before June 25,” says Michael Cadesky, managing partner with Cadesky Tax in Toronto. “It was unprecedented in terms of the level of attention and the amount of time and effort spent going through evaluations for clients.”

Clients who sold assets earlier than they might have otherwise now have less money to redirect toward investing, Mr. Cadesky says.

“People were induced, in a way, to realize capital gains, and once you realize a capital gain, you have to pay taxes,” he says.

In the 2024 federal budget, the government proposed increasing the capital gains inclusion rate to two-thirds for corporations and trusts as well as for individuals with capital gains above an annual threshold of $250,000. The hike in the inclusion rate was to be effective June 25, 10 weeks after the budget announcement.

The federal government stated in the budget documents that it expected to raise an additional $6.9-billion from the change in the first year, more than a third of the $19.4-billion it expected to see over five years.

In a statement sent by e-mail to The Globe and Mail, Finance Department spokesperson Benoit Mayrand said that at the time of the budget, “it was estimated that many individuals, trusts, and corporations would likely realize a greater volume of capital gains prior to June 25, 2024, to avoid the higher capital gains inclusion rate, through a ‘pull forward effect’.”

While many Canadians did trigger gains ahead of June 25, the government’s proposed change didn’t pass into law before Parliament was prorogued on Jan. 6, 2025.

On Jan. 31, the Department of Finance said the implementation date for the capital gains proposal would be deferred to next year. Then, on March 21, Prime Minister Mark Carney said the government would cancel the hike entirely.

“Taxpayers who did nothing ultimately ended up winning,” says Armando Minicucci, partner with Doane Grant Thornton LLP in Mississauga.

Some wealthy clients with access to sophisticated tax advice chose to undertake crystallization transactions, using certain provisions in the Income Tax Act, that gave them the option of deciding at a later date to elect out of realizing a gain, which was useful as the proposed changes didn’t pass.

However, middle-class taxpayers were more likely to sell appreciated assets such as vacation homes before June 25, or to gift the home to the next generation.

“That was the category of folks that was most affected,” says Kevin Burkett, tax partner with Burkett & Co. in Victoria. “If you sold something, be it a stock or a house or whatever, you cannot undo that transaction from a tax perspective.”

Some elderly clients, or those with shortened life expectancies, may have chosen to dispose of assets before June 25 to trigger gains at the one-half inclusion rate rather than risk having their capital property above the threshold amount be subject to the two-thirds inclusion rate on a deemed disposition at their death, which would leave less money for heirs, says Alexandra Spinner, a partner with Crowe Soberman LLP in Toronto.

Now, clients who sold appreciated assets last year with significant gains could find themselves subject to the AMT for 2024, Mr. Cadesky says.

The AMT is a separate method of calculating tax liability meant to ensure taxpayers pay at least a minimum rate of tax. Under changes to the AMT effective last year, 100 per cent of capital gains realized, up from 80 per cent, are included in the calculation of the AMT. The AMT also increased to 20.5 per cent last year, from 15 per cent, and the exemption amount increased to $173,205 in 2024 from $40,000 previously.

Mr. Cadesky says certain people will be affected by the AMT “potentially quite heavily.”

It’s also possible that a retiree who realized significant gains last year after triggering sales before June 25 could lose partial or full access to Old Age Security. For the 2024 taxation year, OAS clawback begins when income exceeds $90,997.

“There are negative consequences [from the capital gain tax reversal], both directly and indirectly,” Mr. Burkett says.

Mr. Mayrand from Finance says data showing whether the federal government saw an increase in the volume of capital gains realized in the period between the April 16 budget and the proposed June 25 implementation date won’t be available from the Canada Revenue Agency until after tax-filing season.

May 9, 2024

Taxpayers who filed information disclosing the beneficial ownership of a trust may have received a letter in error from the Canada Revenue Agency (CRA) stating they owe a $100 late-filing penalty.

The CRA posted a statement on its website that says some trusts that filed a T3 trust income tax and information return with a Schedule 15 after March 30 and before April 3 were charged a penalty in error. The deadline to file the return was April 2. “We are currently reassessing affected accounts to remove the penalty and a notice of reassessment will be issued,” the statement says.

Schedule 15 discloses the beneficial ownership of a trust.

Kim Moody, founder of Moodys Private Client Law LLP in Calgary, read about the error last month on a LinkedIn post from John Oakey, CPA Canada’s vice-president of taxation. After looking into the matter with the CRA, Mr. Moody notified affected clients and instructed them to ignore the letter as their situation would be reassessed. Despite that, he says approximately 10 clients contacted him about receiving the letter, confused about how to proceed.

The penalty error comes after the CRA’s decision to exempt bare trusts from filing T3 returns days before the deadline. Some taxpayers were filing bare trust returns for the first time as T3 reporting requirements became mandatory for informal trust agreements set up by clients over the years.

The reversal caught taxpayers and their accountants off guard as many had filed returns in advance of the deadline, sometimes paying hundreds in accounting fees depending on the volume and complexity of the trusts.

After all the confusion this tax season, for some taxpayers to receive a letter from the CRA about a penalty has resulted in even more frustration, says Debbie Pearl-Weinberg, executive director of tax and estate planning at CIBC Private Wealth in Toronto.

“Many people who do not work in the tax industry are not going to know that this CRA penalty was imposed in error,” she says.

Kevin Burkett, tax partner at Burkett & Co. Chartered Professional Accountants in Victoria, had a handful of clients question why they received the letter from the CRA as they knew he had filed the returns on time. Mr. Burkett sees the issue as part of a bigger problem – accelerating change in Canada’s tax system.

“The letter is a symptom of the fact our tax legislation is becoming so complex that everyone is struggling to interpret and apply these new rules in their own situations,” he says. “The CRA itself under added pressures, worsened by the onslaught of new tax legislation,” including the complex changes to the capital gains inclusion rate introduced in this year’s federal budget.

Mr. Moody says the CRA’s statement is “buried” on its website, making it difficult for the average taxpayer to find the information. “It’s the CRA’s job to broadcast widely and loudly,” he says.

The CRA says it ensured contact centre agents were ready to explain the situation and that it issued a message to tax preparers who submitted T3 tax returns electronically.

“Any payment that has been made related to the penalty will be automatically refunded,” a spokesperson with the CRA said in a statement sent via e-mail. “The CRA regrets any inconvenience that this situation may cause and is committed to providing the best possible service to Canadians.”

Mr. Moody says affected clients started to receive reassessments last week reversing the $100 penalty.

On April 16, 2024 the Liberal Government of Canada released their proposed 2024 Federal Budget. One key proposal is a change to the capital gains inclusion rate to 66.7% from 50.0%. For all corporations and trusts, the new inclusion rate will apply to all realized capital gains. For individuals, the new inclusion rate applies only to realized capital gains exceeding $250,000 on an annual basis. Individuals with realized capital gains below $250,000 per year will maintain the 50.0% income inclusion rate. The proposed changes will take effect on and after June 25, 2024.

If the proposed changes are passed, the result would be a very rapid transition to the higher capital gains inclusion rate. This creates a short timeframe to action planning opportunities to get a 50.0% inclusion rate.

New information about the proposed capital gains rate change is being released daily. Possible delays in passing legislation or amendments to the capital gains proposal are entirely unknown. As of the date of publication, draft legislation has not been released for our review. If passed, the capital gains rate change will have a pervasive effect on the Canadian Income Tax Act.

A brief history of the capital gains inclusion rate:

To 1972                         Nil

1972-1987                    50.0%

1988-1989                    66.7%

1990-1999                    75.0%

2000-2024                  50.0%

2024                              66.7% proposed

Those affected by an increase to the capital gains inclusion rate:

• Individuals and trusts holding marketable securities with unrealized gains
• Corporations with marketable securities and other assets with unrealized gains
• Owners of cottages, second homes, or rental properties
• Individuals leaving Canada
• Deceased taxpayers
• Active sellers of businesses, farms, real estate or other assets with transactions closing soon
• Others, on a fact-specific basis

Should you trigger capital gains?

Reasons – Yes:

• You assume the 66.7% capital gains inclusion rate change is permanent and will apply on and after June 25, 2024
• You are planning to or in the process of selling assets soon and may look to accelerate timeline to close
• You are seeking to leave Canada and may accelerate timing
• Trusts approaching 21-year rule without tax planning options for deemed dispositions
• Elderly taxpayers, especially those without a surviving spouse, who may face a deemed disposition in a short timeframe
• You are carrying out a capital gains strip transaction
• Other reasons, on a fact-specific basis

Reasons – No:

• Capital gains, if triggered pre-emptively, may result in a prepayment of tax which can include alternative minimum tax (AMT) calculated under the new 2024 rules
• Payment of tax using borrowed funds incurring interest is not deductible
• The proposed change to the capital gains inclusion rate is proposed – new information is being released daily
• If many people rush to sell assets there could be a depressed market
• CRA has not commented on how the amended and expanded general anti-avoidance rules (GAAR) could apply
• There are inherent risks that must be assessed and re-assessed – rules are complex requiring specialized advice
• Staying cautious

Overall, the proposed change to the capital gains inclusion rate is expected to impact more Canadians than stated by the Government of Canada. Analysis of your situation should be comprehensive in nature, evaluating the possible risks, benefits, and costs of acting, or not acting, before June 25, 2024.

If you would like to proceed with a comprehensive analysis or have any questions, please contact our Senior Tax Manager Brad Grsic (250.370.9178 | [email protected]).

Disclaimer: This article is intended to inform readers in general terms. It is not intended to provide any tax, investment or business advice. Please consult your advisor if you have any questions about your unique situation. While we have tried to ensure the accuracy of the information in this article, we accept no liability for errors or omissions.

March 21, 2024

If your client is purchasing a new home or embarking on a renovation, there’s an opportunity to advise them on the tax credits and rebates they can claim.

“Clients might not be aware of all the tax credits available to their specific situation,” says Julia Chung, president and certified financial planner at Spring Planning Inc. in Vancouver. “Many times, clients will also not tell you about some of their plans because they didn’t even realize it would be relevant to their tax situation.”

That lack of client communication, or proactivity from their advisor, could translate into leaving money on the table. Below are four tax credits or rebates to help homeowners keep more money in their pockets.

1. The home accessibility tax credit

With the home accessibility tax credit, seniors can claim up to $20,000 toward qualifying accessibility expenses and receive a 15-per-cent tax credit to a maximum of $3,000.

Kevin Burkett, tax partner at Burkett & Co. Chartered Professional Accountants in Victoria, says one popular reno as clients age is replacing a deep-soaker bathtub with one that’s easier to enter and exit.

But there’s a catch to qualify for this tax credit ­­­– the taxpayer must have been 65 or older at the end of 2023 or eligible for the disability tax credit (DTC).

“Let’s say you’re 64 and you’re about to do that tub replacement … maybe wait 24 months and then you’ll get the credit,” Mr. Burkett advises.

While more seniors prefer to age in place, not all are perfectly content with their living arrangements, according to Statistics Canada (StatsCan). More than half are dissatisfied with the accessibility of their accommodation and may renovate to improve the situation.

2. The multigenerational home renovation tax credit

Due to housing shortages and affordability issues, multigenerational living arrangements have become the fastest-growing housing segment, increasing by 50 per cent since 2001 to more than 442,000 households, according to StatsCan.

The multigenerational home renovation tax credit was introduced last year to make cohabited living spaces better for all generations, Ms. Chung says. To qualify, one member of the household (the “qualifying individual”) must be either more than 65 years old at the end of the renovation period or more than 18 years old and eligible for the DTC.

A family member who is 18 or older and lives with the qualifying individual can also claim the credit. But family members who reside together but don’t fall into those specific age brackets and qualifications are out of luck, she adds.

A qualifying family member who incurs renovation expenses in 2023 can claim up to $50,000 in qualifying expenses to create a secondary unit – including materials, services provided by contractors and permits, Mr. Burkett says. In return, they get a 15-per-cent tax credit up to a maximum of $7,500.

“If your mom or dad are getting older and you want to renovate your house to make a comfortable living space for them, this credit is intended as a support or incentive,” he says.

As it’s a new tax credit, he says many clients may not know about it, which is why it’s imperative for advisors to ask clients about their life circumstances consistently.

“With this knowledge, clients may rethink the timing and amount they spend on a renovation,” Mr. Burkett says. “For example, a client with a $40,000 budget may expand to $50,000, knowing they will get a $7,500 credit on their tax return.”

3. The home buyers’ amount

New homeowners can claim up to $10,000 on their tax return. “The only real criterion is that you did not live in another home that you or your spouse or common-law partner owned in the year of acquisition, or in any of the four preceding years,” Mr. Burkett says.

One exception is clients who receive the DTC. In that case, they don’t need to be a first-time home buyer to receive this credit.

He advises clients to look into similar provincial credits for home renovations in Ontario, Saskatchewan, British Columbia and New Brunswick.

4. The HST new housing rebate

Homeowners who build or renovate the interior of their homes substantially, by at least 90 per cent, may qualify for the HST new housing rebate. It must be their primary residence and can be any type of dwelling, such as a single-family home or condo.

Homeowners can apply for this tax rebate, which falls under the Excise Tax Act. There’s a two-year limit to apply from substantial completion or move-in date. The rebate may also apply to new residential housing, such as laneway houses and garden suites on the same property as the primary residence, says Rami Miransky, HST rebate specialist with MCO Wealth Management Inc. in Toronto.

Secondary residences, such as cottages, don’t qualify. However, Mr. Miransky says if a client decides to relocate and either build new or substantially renovate their cottage, they’d be eligible for the rebate as long as it becomes their primary residence.

The rebate has a federal portion (GST) and a provincial portion (PST). Federally, the homeowner would receive a maximum of $6,300, but that’s exclusively for new residential units or renovations for which the value of the property is less than $450,000. The provincial portion would also apply.

Mr. Miransky notes that for properties worth more than that value, the client can only apply for the provincial portion of the rebate, which is a maximum of $16,080, an amount that has remained static since 2010.

Mr. Miransky emphasizes that the rebate is not considered income, but is a refund of the HST paid to build or renovate the home.

“You can’t get a rebate if you haven’t paid the HST,” Mr. Miransky says. “If someone pays cash for the entire build or renovation, you can’t claim the rebate.”

To apply, clients need to offer proof of payment (usually various invoices paid to contractors for the renovation) and fill out a lengthy application form. Some pay middlemen like Mr. Miransky to gather all the information and apply on their behalf.

— With files from The Associated Press

April 19, 2024

The decision by the CRA to reverse its guidance and revoke the requirement for Canadians with bare trusts to file T3 forms just days before the filing deadline has left clients confused, the CRA’s reputation marred, and advisors to pick up the pieces.

The initial decision by the CRA this year was to mandate that a T3 be filed by the beneficiaries of any kind of trust, no matter how informal that trust was. This was largely motivated by the overlaps between trusts and real estate ownership. Beneficiaries were even required to file at T3 if there was no activity in their trusts.

The CRA defines bare trusts as an “arrangement under which the trustee can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust’s property.” The highly informal nature of these trusts mean that any potential trustees had to do a huge amount of legwork to prepare an accurate T3 filing. On March 28th, the day before the Easter Long Weekend and effectively the last business day before the April 2nd filing deadline, the CRA told Canadians that they would not have to file a T3 for their bare trusts.

Kevin Burkett, Tax Partner at Burkett & Co. Chartered Professional Accountants is also a portfolio manager and advisor. He offers full tax services in addition to his investment and wealth management expertise. He explained exactly what went into the CRA’s initial guidance around bare trusts and the sudden decision to reverse that guidance. He outlined where this decision has left his clients and how advisors, whatever their tax certifications, can do to help clients who have been impacted by this sudden reversal.

“Clients were rightly confused by these rules, and found it odd that they needed to make these filings,” Burkett says. “As an advisor, for the last two months we’ve been doing our best to explain the CRA’s position, to commiserate with clients a little bit…We did the work to prepare those filings and two days before the deadline we hear these trust filings won’t be necessary. It’s quite challenging and I think clients are understandably frustrated.”

In demonstrating how broad the definition of a bare trust is, Burkett notes that if a parent helped their child qualify for a mortgage by co-signing a lease, it may meet the definition of a bare trust. Nevertheless, clients want to stay compliant and advisors like Burkett make it their duty to keep everyone onside. As much as the requirement was itself a bit of a pain, the reversal of the decision has done more damage to the CRA and put advisors like Burkett in a more challenging position.

“I think this has some interesting long-lived implications. We may find it more difficult in the future to make the case for new filings,” Burkett says. “I think some taxpayers may be less inclined to comply, too, expecting that there might be some later about-face.”

The initial decision to require T3 filings across all trusts was, Burkett says, borne of an extensive consultation process that began in 2018. While there might not have been consensus that this was the right decision, advisors and accountants were aware of the plans. Burkett’s key takeaway, however, is that the CRA was prevented from fully implementing the feedback they had received, likely due to some form of political interference. A decision at the 11th hour meant they clearly failed to engage with the stakeholders at a level high enough to prompt the CRA to reverse its decision.

Burkett likens this latest mishandling to the failures around rollout of the underused housing tax last year. The legislation, initially intended to cover foreign owners of properties, was so broad in its language that more people were scoped in than expected, resulting in confusion and failures in the rollout.

“There’s clearly a commonality here around real estate, I think they’re trying to address some of the housing affordability crisis with information gathering and requiring new types of filings,” Burkett says. “But it doesn’t seem that they’re placing much emphasis on putting forward a compliance regime that people can follow without taking on undue burden of professional fees and time and energy.”

Burkett accepts that the CRA has a difficult job to do. More often its for them to interpret and execute. As questions around real estate fall under the political lens, however, Burkett sees the risk that key points of nuance in tax legislation are glossed over in favour of a snappy headline that implies a fight for housing affordability. Much of the responsibility for the failure lies with parliamentarians and senior staff who interfere in matters that are highly technical in nature.

Burkett’s greatest concern emerging from this story is that it has harmed the credibility of future tax policy. While advisors like Burkett are on the frontlines at tax season, he worries that some individuals will treat future CRA decisions of this kind with even greater disdain.

“We take a conservative approach to tax and we do that because over time we believe that serves the client best,” Burkett says. “What I worry about is that when we take a conservative, compliant position in some future area of new tax legislation or policy, we may get pushback.”

March 28, 2024

The Canada Revenue Agency says it won’t require Canadians with bare trusts to adhere to complex new tax-reporting requirements for the year 2023, after recent legal amendments meant to increase transparency around trusts caused an uproar among both many affected taxpayers and tax professionals.

The announcement, which came just days before this year’s April 2 deadline for filing trust returns, means tax filers won’t have to report bare trusts this year unless the agency makes a direct request for the files.

The new rules have been lambasted for including onerous requirements to disclose information to the CRA that critics said were particularly hard to comply with in the case of bare trusts, which are often informal arrangements that aren’t documented in writing.

In a statement online the tax agency said it was exempting bare trusts in recognition that the new reporting requirements have had “an unintended impact on Canadians.”

Chartered Professional Accountants of Canada, which represents the profession at the national level, had been among the groups asking the CRA to push back the deadline for filing bare trust returns, said John Oakey, vice-president of taxation at the organization.

Instead, the tax agency used its administrative powers to waive the filing requirements entirely for bare trusts for the 2023 tax year, Mr. Oakey said, calling the move “a much better outcome” compared with a deadline extension.

A trust is a legal relationship in which someone called a trustee holds property for another person known as the beneficiary. In a bare trust, the trustee can only act on the instruction of the beneficiaries.

Accountants and tax lawyers warned that many ordinary, poorly documented arrangements used by Canadians to manage family finances constituted bare trusts that would be caught in the new rules. In many cases, those affected by the new rules never formally or intentionally set up a trust.

Common scenarios involve people who hold title to their adult children’s home because they co-signed their mortgage and those who have their names on their elderly parents’ bank or investment accounts.

This tax season was supposed to be the first time in which Canadians would have to file what’s known as a T3 Trust Income Tax and Information Return for bare trusts, which were previously exempted from having to report information to the CRA.

Part of the difficulty of complying with the reporting requirements stemmed from the fact that assessing whether a bare trust exists can involve extensive information gathering and complex interpretations of common law, according to many tax advisers.

A March online survey conducted by The Globe and Mail through the Carrick on Money newsletter shows the new reporting rules for bare trusts were forcing many taxpayers to spend hundreds – if not thousands of dollars – in accounting and legal fees in addition to routine tax-preparation costs.

While the CRA’s announcement is good news, showing the government listened to sustained and increasing criticism, the fact that it came so close to the filing deadline means both individual and corporate taxpayers have already spent millions of dollars in fees and expenses, said Allan Lanthier, a prominent tax expert and retired partner at EY.

“The Minister of Finance should take a hard look at this fiasco, and develop a new, consultative approach to legislative drafting so that these types of mistakes don’t happen again in future,” Mr. Lanthier said via e-mail.

Kevin Burkett, partner at Burkett & Co. Chartered Professional Accountants, said the late notice would punish conscientious taxpayers and tax professionals who had already submitted bare-trust returns. “Your most honest, ethical taxpayers and practitioners have probably made their bare trust filings already,” he said.

The trust reporting requirements had also resulted in significant extra costs and workloads for accounting firms, according to several tax professionals who spoke to The Globe.

To help Canadians comply with the rules, CRA had previously said it wouldn’t apply penalties for 2023 bare trust returns submitted after the deadline, except in blatant cases of gross negligence. On Thursday, the agency went further by exempting bare trusts entirely for the 2023 tax year.

The move represents the second time in four months that the federal government has walked back new tax-filing requirements. In November, Ottawa announced it would largely scrap reporting obligations for Canadians stemming from the Underused Housing Tax (UHT). The measure, which is meant to discourage foreign real estate investors from leaving residential property underused or vacant, also affects many Canadian and permanent resident homeowners and some Canadian corporations.

Both in the case of trusts and with the UHT, the primary impact of the recent tax changes on Canadians is to create new obligations to disclose information to the CRA, rather than to introduce new taxes.

On bare trusts, the tax agency said in the statement announcing the exemption for 2023 that it will work with the Department of Finance over the coming months to clarify its guidance on this filing requirement. It also said it will share with Canadians further information as it becomes available.

Mr. Oakey said he hopes those consultations will produce rules that, while satisfying Ottawa’s goal of boosting transparency around trusts, are also workable.

“Let collectively come up with rules that actually capture that information without being so broad in scope that they’re capturing useless information.”