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March 30, 2023 | By: Nazreen Siska

Tax Changes in Canada: What You Need to Know When Filing Your 2022 Taxes

Money Management | Taxes

Have you been putting off filing your taxes for 2022? Don’t worry, you’re not alone, and the good news is that there is still time!

The deadline for most Canadians to file their 2022 tax returns and pay any amounts owing is April 30, 2023. However, since that date falls on a Sunday this year, you have until May 1, 2023 to file. Those who are self-employed have until June 15, 2023 to file their 2022 tax return.

With tax season well underway, we’re here to help you understand the latest changes that may impact you when filing your return. Many new changes have been put into effect for the 2022 tax year, including new deductions and credits that could save you money. 

So, what’s different from last year? We’ll walk through the major changes for 2022 filings, why it's important to file your taxes on time, and how doing your taxes can help pay off debt.

Tax Changes: Repaying COVID-19 Benefits

If you received COVID-19 benefits from the CRA in 2022, you will receive a T4A slip with the required information you need for your tax return. These benefits include:

  • Canada Emergency Response Benefit (CERB)

  • Canada Recovery Benefit (CRB)

  • Canada Sickness Recovery Benefit (CSRB)

  • Canada Emergency Student Benefit (CESB)

  • Canada Worker Lockdown Benefit (CWLB)

  • Canada Recovery Caregiving Benefit (CRCB)

In some cases, individuals with a net income of more than $38,000 may have to repay part or all of the benefits received. If you repaid part or all of COVID-19 benefits in 2022, you can decide whether to claim the tax deduction in the year you received the benefit or the year you repaid it.

Tax Brackets Have Shifted To Account For Inflation

To help Canadians keep up with the cost of inflation, the federal government has adjusted tax brackets for 2022, increasing them slightly from 2021 thresholds. For some, the adjustments may result in paying a lower rate on more income.

The new brackets and tax rates for 2022 are as follows:

  • Up to $50,197 of income is taxed at 15%

  • Income more than $50,197 to $100,392 is taxed at 20.5%

  • Income more than $100,392 to $155,625 is taxed at 26%

  • Income more than $155,625 to $221,708 is taxed at 29%

  • Above $221,708, income is taxed at 33%

Tax brackets are being revised each year.

The Basic Personal Amount Has Increased

The Canadian government has increased the Basic Personal Amount (BPA) to $14,398 for the 2022 tax year. The increase is part of the government’s phased goal of amending the BPA to $15,000 by 2023. 

The BPA is a non-refundable credit that can be claimed by anyone who files income taxes in Canada. The credit gives individuals making less than a certain amount a full deduction from income tax, while those who make more than the basic amount receive a partial reduction. 

TFSA and RRSP Limits Have Increased

The Tax-Free Savings Account (TFSA) contribution limit has increased to $6,500 for 2023. The annual TFSA contribution limit for 2019 to 2022 was $6,000. With this year’s limit increase, your total contribution room is now up to $88,000 if you have qualified for the TFSA every year since its inception in 2009.

The Registered Retirement Savings Plan (RRSP) annual dollar limit for the 2022 tax year is $29,210, up from $27,830 in 2021. However, it is important to remember your individual contribution limit is still capped at 18% of your earned income in the previous year.

New OAS Limit Amounts

Old Age Security (OAS)is a government program designed to provide retired Canadians with a source of income to help support their retirement. However, retirees with income over certain limit amounts might find their OAS amount reduced or even cancelled. 

The OAS thresholds for the 2022 tax year are as follows:

  • Minimum income recovery threshold: $80,761

  • Maximum recovery thresholds for ages 65 to 74: $134,626

  • Maximum recovery threshold for ages 75 and older: $137,331

Canadian Pension Plan Maximum Contributions Have Increased

The Canada Pension Plan (CPP) rules have changed as part of the government’s continued implementation of the CPP enhancement. Earnings and contributions are based on a new calculation taking into account the average growth rate of salaries and weekly wages earned throughout Canada.

The maximum pensionable earnings are $64,900, with a basic exemption of $3,500 for 2022. The employee and employer contribution rates for 2022 are 5.7% (up from 5.45% in 2021) with a maximum contribution of $3,039.30, and the self-employed contribution rate is 11.4% (up from 10.9% in 2021) with a maximum contribution of $6,078.60.

Looking ahead to 2023 filings, CPP figures will again change. As part of the enhancement plan, the maximum pensionable earnings will be $66,600 in 2023 with the basic exemption remaining the same. Employee and employer contribution rates will increase to 5.95% for a maximum contribution of $3,754.45. For self-employed individuals, the contribution rate will be 11.9% and a maximum contribution of $7,508.90.

First-Time Home Buyers’ Tax Credit And Home Accessibility Tax Credit

The First-Time Home Buyers’ Tax Credit is a federal initiative to help make homeownership in Canada more affordable. Eligible first-time home buyers can now claim a $10,000 non-refundable income tax credit — double the previous amount — for a qualifying home purchased after Dec. 31, 2021. The change could result in tax savings of up to $1,500 for those who qualify.

The annual expense limit of the Home Accessibility Tax Credit has also increased. Those aged 65 and older who have remodelled their home for safer access can now claim a credit of up to $20,000.

Medical Expense Tax Credit Has Expanded

The government’s list of eligible medical expenses has been expanded to include amounts paid to fertility clinics and donor banks in Canada. This now includes any amounts paid to obtain donor sperm or ova to enable the conception of a child by the individual, the individual's spouse or common-law partner, or a surrogate.

In addition, certain expenses incurred in Canada for a surrogate or donor can be claimed. Further information can be found on the Government of Canada’s website.

How Filing Your Taxes Impacts Debt 

While filing a tax return may bring up feelings of dread — especially if you owe a balance on your return — it is still important to file, especially if you have debt. 

Failing to file a return can have major financial implications, including penalties, interest charges and/or the temporary loss of some government benefits until the taxes are filed and processed.

Costly Penalties 

It is important to file your return and pay any taxes owing by the deadline to avoid costly penalties. 

If you owe a balance but file your tax return on time, you will be subject to interest fees starting May 1st until the balance is paid off. The interest rate the CRA charges is based on prescribed interest rates and can vary every three months.

If you have a balance owing and you file late, you will be subject to interest and a late-filing penalty. The late-filing penalty is 5% of your 2022 balance owing, plus an additional 1% for every month it is late, to a maximum of 12 months.

If you can't pay your balance in full, you can work with the CRA to pay off your personal income tax debt (plus interest) over a longer period of time through installments. If you do not have a balance owing on your tax return, penalties and interest do not apply.

Government Benefits

If you’re receiving certain benefits from the federal government, such as the Canada Child Benefit or OAS, filing your return on time can be crucial. If you don’t, these benefits may be paused.

Eligibility for certain government benefits is contingent on the numbers on your tax return. Benefit amounts are also associated with the total income listed on your return. If you fail to file by the deadline, the government will not have numbers to go off of and you risk having your benefits delayed, so it’s important to get it in on time.

Income Records

Beyond the financial repercussions, not filing a current tax return can also impact other aspects of your life. The information on your filed tax return is used to determine:

  • Loans, such as student loans, mortgages and lines of credit

  • Student grants, as well as certain bursaries and scholarships

  • Low-income grants for programs including home repair and heating rebates

If something happened where you suddenly needed a loan or grant, you may not be eligible if you haven’t filed your tax return.

Failing to file your return on time can bring many consequences. If you cannot pay your balance owing by the deadline, you should still file on time to avoid being charged the late-filing penalty. This will save you money and inconvenience in the future.

Return Can Help Pay Down Debt

If you are receiving a refund on your taxes, consider using it to pay down any debt you may have, such as credit card debt. 

While you may have the desire to treat yourself to a luxury purchase or even a vacation with what feels like “free money” (it’s actually money you overpaid to the government in 2022), you will profit more in the long term if you spend the funds wisely. 

At Credit Canada, we’ve had clients who have recovered thousands of dollars in returns after catching up on years of their taxes, which has helped them pay down high-interest debt.

Do you need help dealing with any taxes that you owe and other forms of debt? Get in touch with a trusted non-profit Credit Counsellor for personalized, judgement-free advice by reaching out to Credit Canada.

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