Tax season is fast approaching, and there have been a number of changes for the 2022 tax year that could affect you.
2022 was a year of economic volatility, with inflation rising to its highest rate in almost 40 years and the impact of the pandemic still being felt everywhere. As such, the government has made some important changes to tax brackets and the basic personal amount, as well as introducing several new tax credits and deductions.
To help keep you up-to-date with what’s changing, we’ve compiled this summary of the most important tax changes to watch out for in 2023.
1. 2022 Tax Brackets
2022 saw the cost of living rise at its fastest pace in decades. In order to help combat high inflation rates and maintain buying power for Canadians, the government has adjusted tax brackets for 2022, with each tier receiving a slight increase from 2021 thresholds. The new Federal Tax Brackets are as follows:
$0 – $50,197: Taxed at 15%
$50,197 – $100,392: Taxed at 20.5%
$100,392 – $155,625: Taxed at 26%
$155,625 – $221,708: Taxed at 29%
$221,708.01 and above: Taxed at 33%
2. COVID-19 Benefits and Repayment
The pandemic may be slowly subsiding, but its effects are still being felt across the world and Canada is no exception. Here’s what you need to know about COVID-19 benefits and repayments when filing your 2022 tax return:
Benefits – Most COVID-19 benefits offered by the federal government are taxable, including:
- Canada Worker Lockdown Benefit
- Canada Recovery Benefit
- Canada Recovery Caregiving Benefit
- Canada Recovery Sickness Benefit
If you received any taxable COVID-19 benefits in 2022 then the CRA will issue you a T4A slip containing the relevant information that will need to be included in your tax return.
Many of these benefits have a 10% income tax applied at the source, which will be reflected on your T4A. However, you may still have to pay additional tax when you file depending on your financial situation.
Some COVID-19 provincial government benefits may also be taxable so be sure to check you have all the relevant provincial slips in order to include the necessary information on your tax return.
Repayment – If your net income is over $38,000 after adjustments and you have received COVID-19 benefits, you may have to pay back part or all of the amount received. Any COVID-19 benefit repayments that you made in 2022 will be included on your T4A slip.
While no one likes repaying benefits, one upside is that they are tax-deductible, with several options available to you when claiming them on your tax return. You can claim the deduction for the amount repaid:
- In the year you received the benefit
- In the year you repaid the benefit
- Split between the two years
Be sure to take full advantage of these deductible options to minimize your taxable income and help take the sting out of giving money back to the CRA!
3. Basic Personal Amount Increase
The Basic Personal Amount (BPA) is a non-refundable tax credit that can be claimed by all individuals filing taxes in Canada. The government has set itself the goal of increasing the BPA to $15,000 by 2023 and has been making small increases each year to reach this goal.
For the 2022 tax year, the BPA has been increased to $14,398, with another increase expected next year.
4. TFSA and RRSP Limit Increases
When it comes to saving money and building wealth for the future, TFSAs and RRSPs are two of the best tools available to Canadian citizens and permanent residents. But with hefty fines for over contribution, it pays to stay up-to-date with your annual limits.
TFSA – For 2023, the contribution limit has increased to $6500, with any unused contribution room carrying forward as always. This brings the total contribution room for Canadian residents who have been over the age of 18 since 2009 to $88,000.
RRSP – As always, contribution room is capped at 18% of your earned income from the previous year, up to a maximum dollar limit. For the 2022 tax year, the RRSP dollar limit has been increased to $29,210. And don’t forget, the RRSP contribution deadline for 2022 is March 1, 2023.
5. 2022 Tax Credits and Deductions
There are few things more satisfying than saving money on your taxes, but to do so you need to know what credits and deductions are available in any given year. For 2022, several new ones were added, while others were expanded or reinstated. Below is a breakdown of the important federal tax credits and deductions to watch out for when filing this year.
Small Business Air Quality Improvement Tax Credit – This new credit is aimed at helping small businesses improve air quality in their offices and facilities to help stop the transmission of COVID-19. Businesses can claim 25% of their qualifying ventilation upgrades to a maximum of $10,000 per eligible location, with a $50,000 limit across all locations.
Automobile Income Tax Deduction Limits – Several changes have been made this year, including an increase in Capital Cost Allowance limits for zero-emission and passenger vehicles, as well as a $100 increase to deductible monthly leasing costs and a 2 cents per kilometre increase to the amount employers must pay employees that use their own vehicle for work.
Labour Mobility Deduction – New for 2022, this deduction allows workers in the construction industry to claim transport, meals and accommodation expenses when working at a temporary location, up to a maximum of $4,000.
Work From Home Tax Credit – As in 2020 and 2021, if you worked more than 50% of your employment hours from home, for a period of at least four consecutive weeks in 2022 due to COVID-19, you may be eligible for this benefit. You can either claim your calculated total expenses or use the flat rate method which pays $2 per day spent working from home up to a maximum of $500.
6. Residential Property Tax Changes
2022 saw some significant tax changes that may impact residential property owners, first-time home buyers, house flippers and non-residents who own homes in Canada. The government also introduced new tax credits to help senior citizens age in place or move in with family. Here’s a quick summary of what’s new and what’s changing:
Underused Housing Tax (UHT) – As of January 1st, 2022, residential real estate owned by non-resident, non-Canadians that is deemed vacant or underused, will have a new annual tax of 1% levied on the value of the property. Under the new UHT rules, the legal owner of the property must file an Underused Housing Tax Return and Election Form by May 1, 2023 (as April 30 falls on a Sunday). For more information, check out our Quick Guide to the New Federal Underused Housing Tax.
House Flipping – As of January 1, 2023, the new residential property flipping rule, included in Bill C-32, is in effect. Now, if you sell a property that you have owned for less than 12 months, the government will deem you to have “flipped” the property and profits from the sale will be considered business income instead of capital gain.
First Home Savings Account (FHSA) – As part of Budget 2022, the government proposed the introduction of a tax-free First Home Savings Account (FHSA). This account would be tax deductible like an RRSP, and withdrawals that go towards the purchase of a new home would be tax-free like with a TFSA. Under this new registered plan, prospective first-time home buyers would have the ability to save $40,000 on a tax-free basis over the lifetime of the plan (with an $8,000 annual contribution limit). Though not currently available, the government expects that Canadians will be able to open and contribute to a FHSA at some point in 2023.
First-Time Home Buyers’ Tax Credit – This tax credit was recently doubled with the implementation of new legislation in December 2022, meaning eligible first-time home buyers can now claim a $10,000 non-refundable income tax credit.
Home Accessibility Tax Credit – Seniors over the age of 65 who are eligible for the disability tax credit can claim up to $20,000 of expenses related to remodelling their homes for increased accessibility.
Multigenerational Home Renovation Tax Credit – Eligible families can claim a refundable tax credit of 15% of a maximum $50,000 in construction costs to build a secondary housing suite that allows seniors or adults with a disability to live with them.
7. Tax Changes Affecting the Elderly
In addition to the new senior-specific tax credits discussed above, there have also been updates to Old Age Security (OAS) limit amounts, as well as an increase to Canada Pension Plan (CPP) maximum contributions.
OAS – For the 2022 tax year, the income threshold amount has increased to $81,761. If you receive an OAS pension, and your net world income exceeds this new threshold amount, then you will have to repay part of, or your entire OAS pension. Additionally, as of July 2022, seniors over the age of 75 will receive a 10% increase in their OAS pensions as part of the government’s new Affordability Plan.
CPP – In 2019 the government implemented a 2-step CPP enhancement plan with the goal of gradually increasing contribution rates over the span of 7 years. In 2023, we are reaching the end of Step 1, with new changes coming in 2024 as Step 2 is implemented.
For 2023, employee and employer contribution rates are now 5.95%, with a maximum contribution of $3,754.45. For the self-employed, those rates are doubled at 11.90%, with a maximum contribution of $7,508.90. The maximum pensionable income under the CPP is now $66,600, with the base allowance remaining unchanged at $3,500.
8. New Immediate Expensing Rules For Capital Property
Under the new immediate expensing rules, unincorporated sole proprietors and partnerships that acquired a capital property on or after January 1, 2022, may be eligible to claim a 100% deduction of the expenditure on this year’s tax return.
Immediate expensing of capital property was made available to Canadian-controlled private corporations in 2021, but this will be the first year that eligible unincorporated businesses can take advantage of the deduction.
Final Thoughts
We hope that this summary of the important Canadian tax changes to watch out for in 2023 has brought you up to speed with what’s new and put you in the best position to get the most out of your taxes this filing season.
For more information on how to plan and prepare for this year’s tax return, check out our guide on the 7 Steps to a Stress-Free Tax Season, or for one-on-one help with all your tax planning needs, get in touch with our team of experts today.
