I consumed this subject matter in my prior life as a tax consultant. But that has waned. It’s still important to summarize for clients, prospects and associated readers of the tax changes happening in 2022. So let’s talk tax. Is there any word that stirs up more dread? They’re complicated, time-consuming, and can cost you a lot of money.
But they can also save you some serious cash if you’re smart about them. Tax credits and benefits are available to Canadians for everything from buying your first home to working from home due to COVID-19. And with spring’s tax filing deadline looming (May 2nd this year), it’s a good idea to keep up-to-date with recent tax changes so you can keep more of your money in your pocket, where it belongs.
Rates and limits
As expected, several tax rates and limits are changing for the 2021 tax return filing year. Federal and provincial income tax brackets are increasing to keep up with inflation.
Employment Insurance (EI) premiums are staying steady at 1.58% in 2022. However, maximum insurable earnings will increase from $56,300 to $60,300.
Maximum pensionable earnings, the amount used by the government to calculate Canada’s Pension Plan contributions for the year, is increasing to $64,900, up from $61,600 in 2021. Similarly, the employee and employer contribution rates for 2022 will be increasing to 5.70%, up from 5.45% in 2021.
The Canada Child Benefit will continue to be indexed to inflation. For the 2021-2022 benefit year, the maximum a parent can receive is $6,833 for children under age 6 and $5,765 for children ages 6 to 17.
Tax-free savings account
Changes are being made to your TFSA in 2022. In 2022, the annual contribution limit on the Tax-Free Savings Account (TFSA) remains at $6,000, where it’s been since it was upped for the first time in 2019. If you’ve never contributed to the TFSA and you’ve been eligible to contribute since 2009, you now have $81,500 in total contribution room.
As the name implies, your money grows tax-free in the TFSA. What sets it apart from the Registered Retirement Savings Plan (RRSP) is that you don’t have to pay income tax when you cash out your money.
Covid credits & benefits
While CERB (the Canada Emergency Response Benefit) no longer exists, a few other pandemic-related benefits have been extended. For the 2021 and 2022 tax years, employees forced to work from home due to COVID-19 can claim a flat rate tax credit of up to $500. You’re eligible for this credit if you’ve worked from home more than 50% of the time for a period of at least four consecutive weeks.
Eligible expenses include utilities, home internet, rent, and maintenance and repair costs. Commission employees can also claim home insurance, property taxes, and the lease of electronics such as cellphone, laptop, tablet, etc.
The Canada Recovery Sickness Benefit provides up to $500 ($450 after taxes) for workers unable to work because they are sick, need to self-isolate or have an underlying health condition that puts them at greater risk. Similarly, under the Canada Recovery Caregiving Benefit, anyone who is unable to work because they need to care for a child or family member due to COVID-19 can receive $500 ($450 after taxes) per week, for up to 44 weeks
Keep in mind that while both CRSB and CRCB deduct a 10% tax at source (so the amount you’ll receive is $450), you may still need to pay additional tax come income tax time, depending on your situation. Both programs have been extended to May 7, 2022.
Canada training credit
The federal government introduced the Canada Training Benefit to help with disruption in the labour force due to changes in technology. This refundable tax credit is designed to lower the barrier to professional development and to provide financial support to help pay for half of the tuition and training fees. As a worker, you’ll be eligible to receive up to $250 annually as a tax credit. This amount goes into a notional account, which the worker can use for eligible purposes.
To be eligible to accumulate $250 in a year, you must meet the following criteria:
- File a tax return for that year
- Be at least 26 years old and no older than 65 years old at the end of the year
- Be a Canadian resident during the year
- Have a total working income of minimum $10,100 and maximum $150,473 (including employment, self-employment, maternity and parental benefits)
To help make it easier to keep track of your notional account balance, it will be communicated each year on the Notice of Assessment you receive from the Canada Revenue Agency (CRA) after you file your income taxes. In any given year you can claim the lesser of the balance in your notional account and half of eligible tuition and fees paid in the year.
Home buyers’ plan
The Home Buyers’ Plan (HBP) assists first-time homebuyers in attaining a down payment sooner. It allows those buying a home for the first time to withdraw money from their RRSP without paying any tax. Any money borrowed under the HBP must be paid back over 15 years, beginning in the second year after your initial withdrawal was made. Only funds that have been in your RRSP for at least 90 days can be withdrawn as part of the HBP.
After being frozen for several years, the federal government increased the withdrawal limit back in 2019. Now, those eligible to participate in the program can withdraw up to $35,000 from their RRSP, up from $25,000 in previous years. This means that a couple buying a home together could withdraw a combined $70,000 from their RRSPs to buy their first property.
Basic personal amount
The basic personal amount is a non-refundable tax credit that all taxpayers are eligible to claim. The basic personal amount is the amount you can earn without paying any income tax, currently at $14,398 for 2022.
In 2019, the federal government announced an annual increase of $15,000 to the BPA, until 2023, after which point, it’ll be indexed to inflation.
However, not everyone will be entitled to this tax break. The wealthiest Canadians, those earning more than $155,625 in the second-highest tax bracket, will have the basic personal amount reduced, with those earning more than $221,708 not receiving any tax break at all for the basic personal amount.
Senior’s tax breaks
Under Old Age Security, seniors aged 65 and older can receive up to $642.25 per month, depending on how long you’ve lived in Canada. Effective July 2022, seniors aged 75 and over will see an automatic increase of 10% on their OAS pension. There is also a one-time taxable payment of $500 for seniors who are eligible for OAS as of June 2021 and were born on or before June 30, 1947.
The maximum pensionable earnings for the Canada Pension Plan (CPP) have increased to $64,900 in 2022, from $61,600 in 2021. In addition, a surviving spouse, over the age of 65 and not otherwise receiving CPP benefits, is able to get 60% of their deceased spouse’s pension. Survivors between 60-64 years of age are eligible for 37.5%.
Parents’ tax breaks
Being a parent isn’t cheap, and any tax breaks you can get can be a big help. Any maternity or parental benefits received through EI are tax-exempt at source. This means an extra $1,800 a year for someone who receives EI benefits and earns $45,000 a year.
For the 2021-2022 benefit year beginning July 2021, the maximum annual benefit under the Canada Child Benefit is $6,833 for each child under 6 and $5,765 for children aged 6 to 17. For parents of disabled children under the age of 18, the Child Disability Benefit has increased to $2,915 for the July 2021 to July 2022 benefit period.
Registered disability savings plan
There is no annual contribution limit for a Registered Disability Savings Plan (RDSP). However, the lifetime limit is $200,000, and contributions are only permitted until the beneficiary turns 59.
There’s no shame in getting help with your tax return and making sure you’ve covered all your bases. Tax return software has become increasingly popular and choosing the right one could make all the difference.
We consult with our clients on the changes to their personal situation as tax legislation and benefits change. Where things are more intricate or difficult, we can refer people to the tax experts we have a continued relationship with, so you can discuss all the above changes and see what applies to you. Understanding your eligibility and documentation needed will help prevent any unpleasant surprises and expedite these tedious processes. Tax season comes around once a year, so while it may be cumbersome, take the time now and do your research so you can save time later on, and, better yet, possibly enjoy your well-deserved tax refund. The sooner its in your hands, the faster you are to Keeping Life Current.