As we come close to the end of year 2022 with all the holiday cheer and festive gatherings, tax season is just around the corner awaiting for us.
For 2022 tax year, you have until May 1, 2023 to officially file your personal tax return (June 15 for self-employed). The earliest time to file your 2022 tax return will be February 20, 2023. The due date to pay off tax balance owing is May 1, 2023 for all taxpayers (both self-employed and non self-employed) to avoid any interest and penalties.
Furthermore, along with a long pandemic, inflation threats, high interest rate and stock market crash, it has never been a better time to start planning and get ready for the upcoming 2022 tax filing in year 2023 to maximum your tax deductions and minimize taxes.
Also, there is so many benefits of filing your tax returns even though you don’t need to pay taxes. For example, you may qualify to claim a refund for taxes that you overpaid during the year. You may also qualify for government programs that require annual tax return filing, such as the Canada Dental Benefit and one-time top-up to the Canada Housing Benefit that was introduced in year 2022.
So, what are we waiting for? Let’s get started and celebrate this holiday season with our Top 10 2022 tax changes that highlight the tax measures for Canadian taxpayers that aim to conquer inflation, build wealth and save taxes.
- Tax measures that conquer inflation
- Saving incentives that build wealth and weather rainy days.
- Tax tips for reducing personal taxes.
1. Relief in Federal Tax Brackets
This federal tax measure will likely light you up if you have no changes in salary in year 2022. The government has adjusted the tax brackets slightly in 2022 and if you are on the edge of a tax bracket, you may find yourself shifted into a lower bracket this year and pay less taxes.
Here is an example. If you are making $50,000 in year 2021, your federal tax rate was 26%. In year 2022, however, this $50,000 income will be paying 15% tax rate, instead of 26% tax rate. The reason is the federal government has shifted the 26% tax bracket from “$49,020 to $98,039” in 2021 to “$50,197 to $100,392” in 2022.
2. Increase in Basic Personal Amount
You may not need to pay taxes even though you have income in the year 2022, as there is a basic tax exemption amount, named “Basic Personal Amount”.
This year, the Basic Personal Amount has increased from $13,808 (year 2021) to $14,398 (Year 2022). With this tax measure, you will not be required to pay income tax if your net income was less than $14,398 in year 2022.
For those who needed to pay taxes in year 2021, they will likely get a small tax deduction on their 2022 return. This tax exemption amount will also be increase to $15,000 in 2023 and continue to be indexed for inflation year after year.
3. Increase in Canada Pension Plan (CPP) maximum contributions
Canada Pension Plan (CPP) and Québec Pension Plan (QPP) is a mandatory retirement saving mechanism in Canada for taxpayers with employment or self-employed income more than $3,500 in year 2022.
If you notice a reduction in earnings on your pay cheque in year 2022, then it is likely due to a 2.7% rate increase in CPP and QPP. This increase in CPP contribution rate will not only reduce your salary, it also increase the payroll cost for your boss per pay cheque. Ouch!
So, is there any upside about this rate height? Yes, this incremental increase in CPP contribution rate will strengthen the future value of the CPP and possibly maintain the cost of living for retirees during their retirement as the continuous increase in inflation rate will likely erode their purchasing purchase overtime.
Like it or not, the maximum CPP contribution for you (the employee) and your boss (the employer) is $3,039.30 ($3,315.60 for QPP) in 2022, while $2,875.95 ($3,137.40 for QPP) in 2021. The maximum pensionable earning in 2022 is $64,900 ($61,600 in 2021), with a basic exemption of $3,500.
If you are self-employed, you must account for both the employee and the employer sides of the contribution. Your maximum CPP contribution for self-employed income is 6,078.60 in 2022 ($6,999.60 for QPP), while $5,751.90 ($6,274.80 for QPP) in 2021.
4. Pumped up 2022 Threshold for Old Age Security (OAS) limit amounts
The OAS is designed to provide retirees with a source of income to support their retirement. If the retiree’s income higher than the CRA’s income threshold, the OAS amount will be reduced, and even eliminated entirely. Traditionally, this benefit reduction system is named “clawback”.
This year, the federal government has pumped the income threshold up by $1,916. So if you are on the edge of the threshold limit last year ($79,845 in 2021), you may not be haunted by the clawback this year and no pay back of the OAS is required on year 2022 tax return.
On the other hand, if your taxable income was over $81,761 in 2022 ($79,845 in 2021), then you would need to repay some of your OAS as a form of tax owing through your tax return. If your taxable income was over $134,626 in 2022 ($129,757 in 2021), then you would not have received any OAS payments.
Seniors aged 75 and over, will receive an automatic 10% increase of their Old Age Security pension as of July 2022 through the new Affordability Plan, with the possibility that “clawback” may apply for high income seniors as mentioned above.
5. Increase in RRSP contribution dollar limit
Although your RRSP contribution limit is capped at 18% of your earned income in the previous year, the RRSP annual dollar limit for tax year 2022 is increased from $27,830 (Year 2021) to $29,210 (Year 2022), which is the maximum amount of RRSP that you are allowed to contribute in year 2022, regardless of your income. This adjustment provides taxpayers with additional tax saving opportunities if their income reach the annual dollar limit.
The deadline for RRSP contributions for tax year 2022 is March 1, 2023. If you want to claim the deductions on your 2022 taxes, check your available contribution room on your latest Notice of Assessment and review your financial priority to determine the amount of money that you would like to invest for your future retirement. Also, you can contribute until December 31st of the year you turn 71 years of age.
6. 2022 TFSA contribution limit
Other than RRSP, TFSA is another Canadian’s tax saving strategy that you can’t overlook. The earning from this registered account is 100% tax free. The contribution limit for year 2022 will remain at $6,000; but if you are a resident of Canada and qualified for a TFSA account since 2009, your total cumulative contribution room for TFSA is $81,500.
7. 2022 Work-from-home expenses
If you were working from home in year 2022 during the pandemic, you can still claim up to $500 for work-from-home expenses. The flat rate method ($2.00 per day) from previous tax year will still be in effect for the 2022 tax year.
8. New Form, T1B, Request to Deduct Federal COVID-19 Benefits Repayment in a Prior Year
There are various reasons that you need to repay your COVID-19 benefits. If you received certain federal COVID-19 benefits in 2020 or 2021 and make repayments before January 1, 2023, you can now request to claim a deduction for all or part of the repayment on your personal tax returns by using the new CRA form, named T1B, Request to deduct Federal COVID-19 Benefits Repayment in a Prior Year, either for the year you received the benefit (i.e. Year 2020 or 2021), the return for the year you repaid the benefit (i.e. Year 2022), or split the deduction between the two returns (i.e. Year 2020/2021 & 2022).
The COVID-19 benefits that apply are listed below:
- Canada Emergency Response Benefit (CERB) from the CRA or Service Canada
- Canada Emergency Student Benefit (CESB)
- Canada Recovery Benefit (CRB)
- Canada Recovery Sickness Benefit (CRSB)
- Canada Recovery Caregiving Benefit (CRCB)
9. 2022 Tax-Free Motor Vehicle Allowances
The per-km allowance that employers pay to employees who use their personal vehicle for work may be tax-free.
For year 2022, this tax free amount increased by $0.02 from $0.59 (year 2021) to $0.61 ( year 2022) per km for the first 5,000 km and $0.53 (year 2021) to $0.55 (year 2022) per km for each additional km.
For the Territories, the rates are increased from $0.63 (year 2021) to $0.65 (year 2022) per km for the first 5,000 km and $0.57 (year 2021) to $0.59 (year 2022) per km for each additional km.
10. Increase in CRA’s 2022 Prescribed rate
With the recent increase in interest rates, the CRA’s prescribed interest rate has increased from 1% (June 2022) to 3% in the fourth quarter of 2022.
If the CRA owes taxpayers money, then there will be an increase in refund interest; but if taxpayers have a tax owing to CRA, such as tax penalties, insufficient instalments and unpaid income and payroll taxes, then the interest payment to CRA will also be increased.
So, one of the best tax saving strategies that you can apply immediately is paying your tax owing on time, or as soon as possible.
The new height of the prescribed interest rate also affect families having family loans, such as spouse loan, for investment purpose. This tax saving strategy will only work effectively when the investment rate of return earned is higher than the prescribed rate of interest charged on the loan and the borrower is required to pay the prescribed interest on the family loan no later than 30 days after the year-end, which is due by January 30, 2023 for year 2022 tax year; or otherwise, any income or capital gains from the transferred assets will be attributed back to the taxpayer, who generally is at a higher marginal tax rate of the family members.
Here are the prescribed interest rates for FY22Q1 to Q4 per CRA website:
(Jan 1, 2022 to June 30, 2022) = 1%
(July 1, 2022 to Sep 30, 2022) = 2%
(Oct 1, 2022 to Dec 31, 2022) = 3%