The new tax year is right around the corner, and after a long 2021 with many changes in the Canadian tax system, we are here to help you file your taxes on time. In 2021, Canada reported its highest inflation rate in 18 years—a 4.7% increase. The Canada Revenue Agency (CRA) adjusts for inflation when updating tax breaks for 2022. This process, called indexation, will have a significant impact on your 2022 tax bill.
If you received income benefits due to COVID-19, know that CRA will require you to pay the outstanding income tax debt this year. The payment was deferred for the 2020 tax and benefit return to give Canadians more time and flexibility to pay. This income tax debt payment applies to the entire tax amount you owe for 2020, not only to COVID-related income support you may have received.
If you work from home, gather all your receipts because there are some new items you can deduct from your tax bill.
We gathered a few must-know facts about this upcoming tax season so that you maximize your tax return.
5 Ways to Prepare for the 2022 Canadian Tax Season
Increased Federal Tax Brackets and Marginal Tax Rates
Due to the high inflation rate, the CRA raised its indexation rate from 1% to 2.4% for 2022.
For taxpayers with net incomes below $155,625 in 2022, the CRA raised the Basic Personal Amount to $14,398. This will exempt you from paying the minimum federal tax rate of 15% if your income is below the limit. That means you will save $2,160 when filing your federal income tax return. If your income exceeds $155,625, the $1,679 additional amount is reduced to zero at an income of $221,708.
The Basic Personal Amount will increase to $13,808 in 2021 for taxpayers with net incomes below $151,978. For incomes above this threshold, the $1,387 additional amount progressively reduces until it falls to zero for incomes of $216,511.
Additionally, the minimum taxable income has been raised to $50,197. Your federal tax rate will be 15% of your taxable amount below this threshold. The CRA offers an age amount tax credit if you are over 65 years old. According to the CRA, the 2022 age amount has increased to $7,898, which will result in a tax reduction of $1,185.
New Rules for Digital Businesses and Service Platforms
Three measures announced in the Fall Economic Statement 2020 have subjected digital businesses and service platforms to potential goods and services tax (GST/HST) obligations beginning July 1, 2021. As a result, you may have to register, charge, and collect tax.
As part of this measure, non-resident vendors, non-resident distribution platform operators, and distribution platform operators who have a profit of more than $30,000 can use a simplified GST/HST registration, reporting, and remittance system.
Businesses affected include:
- Foreign vendors or distribution platforms that are not physically in Canada but hold their products in Canadian distribution centers.
- In this case, the vendor must charge GST/HST tax on all sales to Canadians. These vendors and service platforms must register for GST/HST under the standard regulations. Digital businesses are now required to send an annual report to the CRA, and fulfillment warehouses are required to inform the CRA of their continued operation as fulfillment warehouses.
- Foreign vendors or platforms that offer digital services and products, such as streaming services, to Canadians who are not subjected to the standard GST/HST regulations.
- Before this new rule, it was up to Canadian consumers to pay the GST/HST on the value of their digital products to the CRA. Under the new simplified regulations, any foreign digital vendor or platform should register and collect GST/HST on taxable products. These products include mobile apps and streaming services.
- Short-term accommodation suppliers or digital platforms (e.g., Airbnb).
- All platform-based short-term accommodation suppliers must collect GST/HST on all short-term rentals in Canada by Canadians and non-resident property owners. If the owner of the property is GST/HST registered, they collect the tax and remit it. Otherwise, accommodation platform operators will be responsible for collecting and paying the tax if the property owner is not registered.
COVID-19 Relief and Benefits
If you received COVID-19 benefits in 2021, you might have already been surprised by receiving a T4A – Statement of Pension, Retirement, Annuity, and Other Income from the CRA. When you received CERB, CESB, CRB, CRCB, CRSB, and provincial benefits, the amount deposited in your account didn’t have any taxes withheld. That’s why you need to pay them when you file your 2021 tax return.
The CRA offers a tool to calculate how much you received in benefits here.
If you still owe 2020 taxes, you may be eligible for interest relief if:
- Your total income in 2020 is less than $75,000.
- You received at least one COVID-19 benefit in 2020 (CERB, CESB, CRB, CRSB, CRCB, EI, or provincial benefits).
- You filed your taxes and benefit return in 2020.
If you meet the criteria, you don’t need to pay interest on your tax owing until April 30, 2022.
In 2021, the CRA introduced three new recovery benefits to help people whose employment continued to be affected by the pandemic:
- Canada Recovery Benefit
- Canada Recovery Sickness Benefit
- Canada Recovery Caregiving Benefit
With these new programs, the CRA also changed from not withholding taxes to withholding 10% tax from all three.
People applying for these benefits may be subject to penalties if they:
- Knowingly applied for and received a benefit that they were not eligible for
- Deliberately made false or misleading representations while applying
In addition, individuals who applied for and received a benefit by mistake must follow specific repayment procedures.
New Tax Relief for Family Business Transfers
On June 29, 2021, Bill C-208 received royal assent and is now in effect. The purpose of Bill-208 is to reduce the financial disadvantage that business, farm, and fishing company owners incur when they sell shares to their children or grandchildren rather than to a non-affiliated third party. The tax disadvantage stems from specific tax rules, particularly section 84.1 of the Income Tax Act, prohibiting tax avoidance.
Bill-208 also includes siblings as part of the exceptions. When a business owner transfers shares to a child or grandchild 18 years old and older, the rule states that it doesn’t result in a deemed dividend to the taxpayers when they meet certain conditions.
The new rule doesn’t deem a taxpayer and the purchaser corporation to be dealing at arm’s length when:
- The traded shares are QSBC shares or shares of a fishing or farming company.
- A child or grandchild of a seller taxpayer controls the purchaser corporation.
- The purchaser corporation cannot sell the exchanged shares within 60 months of the purchase.
Deduct Home Office Expenses
In the aftermath of COVID-19, many people started working from home. As a result, some people needed to pay work expenses out of pocket. Not to mention the physical accommodations they have to make to create a professional working environment.
The CRA has recently announced that Canadians working from home because of the pandemic can claim up to $500 in-home office expenses. In addition, Canadians who worked from home more than 50% of the time and for more than four consecutive weeks can claim a $2 temporary flat rate per day up to $500 or claim the employment amount of expenses paid while working from home.
When claiming the flat rate, the employee doesn’t need to report the size of their workspace to calculate their expenses. However, in the detailed method, taxpayers must determine the size and use of their workspace to calculate their claim. Find more information here.
The CRA also released a simplified T2200 form to facilitate the process for employers if their employees want to claim expenses.
Tax Deadline for the 2021 Fiscal Year Tax Returns
It is essential to file your tax return by the due date. Have your social insurance number and all T4 forms organized and ready. You will need them to report the correct income amounts to the CRA.
Here is the deadline to file your income tax returns:
- Personal Tax Returns: April 30, 2022
- Self-employed: June 15, 2022
- Date of death between January 1, 2021, and October 31, 2021: April 30, 2022
- Date of death between November 1, 2021, and December 31, 2021: Final return is due six months after their death.