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March 2025 – Tax Newsletter – T1 ORGANIZER

POSTED March 14, 2025 BY Elina Blog, Tax

TOPICS COVERED

  • The 2024 Fruitman Kates LLP Tax Organizer is Live!
  • My Business Account: No More Paper Mail
  • Secondary Suites: Various Tax Implications

2024 TAX ORGANIZER

Please click here to download our Tax Organizer for the 2024 Tax Year.

It’s Tax Season and we’re counting down to April 30th! Have you begun compiling your documents?
This tax organizer will cover all the information our professional team will need to fill out and submit your tax return to CRA.

My Business Account: No More Paper Mail

In the Spring of 2025, CRA will change the default method of correspondence for most businesses to online only. This means that most businesses will receive their notices of assessment, letters, forms, statements and other documents from CRA through My Business Account rather than by traditional mail. Notifications that new mail is available online will be sent to the email address(es) registered on My Business Account. Business correspondence will be presumed to be received on the date that it is posted in My Business Account.
This change will apply to all of the following:

  • existing businesses registered for My Business Account;
  • businesses who have a representative that access taxpayer information through Represent a Client; and
  • all entities that register for a new business number or program account.

CRA recommended taxpayers sign in to My Business Account to ensure the email address on file is current. There can be up to three email addresses for each program account.
Owners of new businesses should ensure to register for My Business Account and provide a valid email address to ensure that they do not miss notifications or correspondence from CRA.
Impacted businesses can continue to receive paper mail by opting out of the online default by taking one of the following two actions starting in May 2025:

  • selecting paper mail as the delivery option in My Business Account; or
  • filling out and mailing Form RC681 – Request to Activate Paper Mail for Business to CRA.

No information was provided on the required lead time to avoid the transition and continue to receive traditional mail.
This change will not apply to the following who will continue to receive traditional mail:

  • existing businesses not registered for My Business Account through the business owner or an authorized representative (via Represent a Client);
  • charities, unless they sign up to receive online mail; and
  • non-resident businesses that do not have access to My Business Account through their representative or an owner who is a Canadian resident.

ACTION: Ensure that your email address listed in My Business Account is up to date. Consider opting out of electronic only communications in May 2025, if that is your preference.

Secondary Suites: Various Tax Implications

There are several reasons an individual might convert part of their home into a rental property. However, this action can have significant income tax implications, including potentially limiting access to the principal residence exemption, which can be easily overlooked.
Two June 27, 2024 Technical Interpretations analyzed the tax implications of creating secondary suites. The suites reviewed in one interpretation were eligible for provincial program that provided forgivable loans, while the suite in the other interpretation qualified for the multigenerational home renovation tax credit.

Provincial program – forgivable loan

The program (BC Secondary suite incentive program) offers a forgivable loan to homeowners who create a new secondary suite or accessory dwelling unit on the property of their principal residence. For this particular program, the loan would be forgivable if the suite is rented at below-market rates for at least five years. The secondary suite must be a newly constructed legal self-contained unit and could include secondary suites attached to the primary residence (e.g. basement suites) or detached secondary suites (e.g. laneway homes and garden suites). Participants must enter into a rental agreement with a tenant who is not an immediate family member. Similar programs may be offered in other provinces and jurisdictions.
Source of income
CRA opined that the rent received would likely be a source of property income. The actual rent would be reported and not adjusted to fair market value. CRA noted that it was possible, depending on all facts and circumstances, that the activity would not be a source of income, in which case any losses would not be deductible.
Treatment of forgivable loan
The forgivable loan would generally be government assistance and result in a reduction of the cost of the secondary suite.
Change of use
CRA noted that a taxpayer who has partially converted their principal residence to an income-producing use would be deemed to dispose of (and reacquire) that part of the property for proceeds equal to its proportionate share of the property’s fair market value. Any resulting capital gain may be eliminated or reduced by the principal residence exemption.
CRA referred to their policy not to apply the deemed disposition provision in certain cases where a principal residence is also used to generate income but opined that the creation of a second housing unit as required for the provincial program would be a structural change, and therefore the deemed disposition provision would apply.
CRA confirmed that an election to avoid the deemed disposition could be filed. In this case, the deemed disposition would be avoided; however, CCA could not be claimed against the rental income.

Multigenerational home renovation tax credit (MHRTC)

The MHRTC provides tax credits for homeowners who renovate their homes to create a secondary unit for a qualifying individual (a senior or an adult eligible for the disability tax credit). The secondary unit must be self-contained with a private entrance, kitchen, bathroom and sleeping area and must meet local standards to qualify as a secondary unit.
Change of use
Whether a deemed disposition occurs upon partial change in use is a question of fact. Since the MHRTC does not require the secondary unit to generate rental income, and the unit would be used by a family member, there may not have been a change in use to gaining or producing income (from personal use). As such, the partial change in use rules may not apply.

Principal residence exemption (PRE) for secondary suites

Both interpretations discussed how secondary suites affect the PRE. If two units are each self-contained, each with its own entrance, kitchen and bathroom and can be ordinarily inhabited separate from each other (that is, without access to the other unit), CRA’s view is that they will generally be considered separate housing units for the PRE. Where it can be demonstrated that the two units are sufficiently integrated (both structurally and in their usage) and are being used for the exclusive use and enjoyment of the taxpayer and their family (that is, the two units are integrated to function as one single-family residence), it is possible that they would be a single housing unit.

In discussing the provincial program, CRA noted that the secondary suite would be a separate housing unit for PRE purposes. Even if it is part of the same structure or lot as the main home, only one unit could be designated as the principal residence each year. Since the suite must be rented to a non-family member to qualify for the program, it would not typically be inhabited by the homeowner, so it would likely not qualify for the PRE. However, the main residence could still qualify if it meets the usual requirements.
In the context of the MHRTC, CRA indicated that a taxpayer who constructs a secondary unit that is a self-contained housing unit eligible for the MHRTC would generally be considered to have two separate housing units. However, where the second unit is used for personal purposes and the taxpayer can demonstrate that the two units are being used together and functioning as a single unit, it may be possible to treat the property as a single unit eligible for the PRE. The determination of whether there are two self-contained housing units would be fact-dependent, as discussed above. Key factors would include the extent of the integration between the units and whether they share legal titles, mailing addresses, entrance doors and utility accounts.

ACTION: Adding a secondary unit to a home may trigger a taxable disposition or limit the principal residence exemption. Assess tax implications before starting renovations.