Registered Retirement Savings Plan ("RRSP")
Review your RRSP contributions for 2022. To maximize your 2022 RRSP deduction you will need to determine how much you should contribute before the February 28, 2023 deadline.
If you don't know your 2022 contribution limit, talk to your Chartered Professional Accountant or call Canada Revenue Agency's (CRA) help line (1-800-959-8281). CRA has an online service called My Account for checking your RRSP limit, instalments made in the year and other items. To use this service click on the My Account link. Your 2022 contribution limit should also be on your 2021 Notice of Assessment.
The earlier in the year the contributions are made, the higher the compound growth in your RRSP will be and that means more investment income is sheltered within the RRSP. The 2022 maximum RRSP contribution is $29,210.
Registered Education Savings Plan ("RESP")
An RESP is a type of trust registered with CRA through which you can save for your child's (or grandchild's) education. Although contributions to the plan are not tax-deductible, income accumulates within the plan on a pre-tax basis.
When the funds are used by your child, the income portion is considered the child's income and is taxed at his or her lower rate. To further enhance the attractiveness of an RESP the government introduced a plan to partially match contributions, called the Canada Savings Education Grant, equal to 20% of the first $2,000 in annual contributions for children under the age of 18.
See us for the updated rules on the timing of payment and eligibility for government funding. If the child does not pursue education or training, the grant must be repaid to the government.
First Time Home Savings Account ("FHSA")
The 2023 budget introduced the FHSA which, which allows certain individuals to contribute up to $8,000 per year to the account up to a lifetime maximum of $40,000. Contributions are tax deductible like an RRSP and income earned is not subject to tax. If a withdrawal is made for a qualifying home purchase, the proceeds are non-taxable. However, the proceeds are taxable if the withdrawal is made for a non-qualifying purpose. To qualify for the FHSA, the individual must be resident in Canada and at least 18 years of age and not have lived in a home that they owned at any time in the year the account is opened, or the 4 preceding calendar years. You cannot withdraw from a FHSA and a Home Buyers Plan for the same qualifying home purchase.
Multi-Generational Home Renovation Tax credit
A new tax credit is available which provides a 15% credit on eligible renovation expenses of up to $50,000. The refundable credit applies to eligible expenses used to create a secondary dwelling unit for a senior or a person with a disability to live with a qualifying relation. This new tax credit will apply to the 2023 and subsequent taxation years for work performed and paid for and goods acquired on or after January 1, 2023.
Set up a file or an envelope to ensure you have all your receipts from the dentist, optometrist, pharmacist, charitable donations, political contributions, tuition fees and child care expenses. Although some may be mailed to you at the end of the year, you have likely accumulated many receipts throughout the past months. Keeping all of these together in one place avoids losing a deduction or claim and makes gathering together the information for your return in March or April much simpler. Where appropriate, we recommend requesting summaries of medical expenses paid during the year to ensure all amounts are included.
Consider options for income splitting with your spouse or children. Simples alternatives include investing Child Tax Benefits in your children's names or paying spouses or children reasonable salaries for services performed in your business.
More complicated alternatives involve transferring certain assets to children and transferring or lending funds to other family members. Care needs to be taken in these areas to avoid or minimize the effects of the attribution rules.
Talk to your chartered professional accountant before proceeding with any income splitting techniques about which you are not sure of the tax effects. Starting in the 2007 year, certain pension income is eligible to be split with your spouse. See us for details on the types and amounts of pension eligible for this treatment.
Have you remembered to take advantage of losses that may have been realized in previous years? Although non-capital losses are usually remembered, many times individuals lose track of net capital losses of earlier years. If you are unsure of whether you may have net capital losses available, contact your Chartered Professional Accountant or CRA.
Are your family's investments, bank accounts, bonds and term deposits registered appropriately? If your spouse has interest-earning bonds, term deposits or savings accounts, ensure that the interest is accrued to the appropriate taxpayer.
Monitor your stock investments. Capital gains and losses are only reported upon the sale or deemed sale. Thus, rather than selling winners late in the year, consider selling on January 2 to defer the gain. If the sale will result in a capital loss that can be applied against gains made during the year or in the three preceding years, consider selling before the year end. But remember, the losses may be denied if you or your spouse acquire similar shares within 30 days before or after the sale.
Attempt to rearrange investments to repay debts on which the interest is not deductible or to make the interest tax deductible. Many personal debts must be paid with after-tax dollars and because the interest expense is not tax deductible, the cost of the loan is more expensive. It pays to reduce these debts as quickly as possible.
Consider taking advantage of the government's Tax Free Savings Account beginning in 2009. This allows eligible individuals to transfer up to $5,000 per year into a government registered account (Indexed to $5,500 for 2013 and 2014). The income on this account is not taxable and withdrawals from the account are also not taxable. Speak to your investment advisor to determine which investments are right for you. The 2015 budget increased the TFSA limit to $10,000 for the 2015 year. This was then reduced back down to $5,500 by the Liberal government for 2016 through 2018. For 2019 through 2022, the TFSA limit has increased to $6,000. Beginning in 2023, the annual contribution limit was increased to $6,500.
Have you captured all employment expenses? Now may be the time to search for those gas, repair, registration, insurance premium, entertainment and promotion receipts. Make sure you log all kilometres driven for business purposes. Having records of the actual mileage will also be helpful in determining the percentage of automobile expenditures you should deduct.
Business-related entertainment expenses are limited to a 50% deduction but reasonable amounts for gifts, such as flowers and other thank-you items, are fully deductible.
The standby charge and operating benefit reflect the benefit of having a company-owned vehicle available for personal use and having the company pay for various operating costs. The calculation of this benefit depends on the amount of business vs. personal use of the vehicle and other factors. If you are unsure how to calculate this benefit, contact your Chartered Professional Accountant or obtain CRA's Guide to Taxable Benefits.
In order to prove your business and personal driving, remember to track your kilometers in a vehicle log book or daily diary.
With more employees working from home than ever before, you may qualify for a home office expense deduction. This process requires tracking certain expenses for the home and allocating them on a square foot basis against your employment income. A T2200 - Declaration of Conditions of Employment signed by your employer will be required in order to be able to deduct expenses.
Due to the COVID-19 pandemic, the CRA has allowed employees working from home in 2020 to claim up to $400 of home office expenses, based on the amount of time worked from home, without the need for detailed expense receipts. For the 2021 and 2022 tax years, employees may be able to claim up to a maximum of $500. Under this simplified method a signed T2200 form from the employer is not required. Talk to your Chartered Professional Accountant to see if you qualify for this deduction.
COVID-19 Emergency or Recovery Benefits
If you received COVID-19 emergency or recovery benefits during the year, you are required to report the amount received in your 2022 personal tax return. The CRA will issue a T4A slip if you received any of the following benefits:
- Canada Recovery Benefit (CRB)
- Canada Recovery Caregiving Benefit (CRCB)
- Canada Recovery Sickness Benefit (CRSB)
- Canada Worker Lockdown Benefit (CWLB)
Review the amount of your quarterly instalments. Often incomes fluctuate from year to year. If your income tax for 2022 will be lower than 2021's actual, you can adjust your instalment payments. Adjusting the instalment means that Canada Revenue Agency won't have your money on an interest-free basis until it is refunded in the spring of 2023.
Alternatively, if your income for 2022 will be the same or more than 2021 you should make the required instalment in March 2022. As mentioned above, you can log on to My Account on the CRA web page or call them to determine the amount of the instalments you have made for 2021. You can find more information on their website.
Underused Housing Tax ("UHT")
If you own residential property as a partnership (ie. you and your spouse own a rental property together), or if you own residential property through a corporation, you are likely impacted by this new tax .
The Underused Housing Tax (“UHT”) was introduced as a new tax designed to penalize non-resident owners of Canadian residential units that are not being occupied. This this new tax took effect January 1, 2022.
However, you may be surprised to find out that you are required to file a UHT return even though you do not have to pay the tax, and the penalties for non-compliance are stiff. Fines for non-compliance start at $5,000 for an individual and $10,000 for a corporation per unfiled return, and you may have to file a return for each residential property you own. In addition, you have to file a return for each legal owner, so if you and your spouse jointly own a residential rental property, then each of you will have to file a return for that property.
If you are an individual who is a resident of Canada or a Canadian Citizen, you will be exempt of the tax. However, if you hold your interest in a residential property as a partner of a partnership with an intent to profit from a business generated from that property, you likely need to file a UHT return even though you’re exempt of the tax.
Here’s a list of entities that need to file the UHT:
- Partners of partnerships (this could mean if you and your spouse own a rental property jointly, you’re required to file a return for each property)
- Privately held Canadian corporations; and
- Trustees of trusts other than testamentary trusts (estates).
A UHT return is required to be filed with CRA by April 30th each year, starting in 2023. If you are any of the 3 entities listed above, it is highly recommended that you speak with your tax advisor to determine if you have a filing requirement and how to have your return filed.
You do not need to file a UHT for your primary residence as you are using the residence, on a square footage basis, more than 50%. This is also the case if you rent out less than 50% of your primary residence.
If you own property on title with your children for security or estate planning purposes, you may be a trustee and are required to file a UHT return.
Farmland, even though it may be used in a business-like setting, is generally going to be exempt from filing a UHT. However, you should contact your advisor on this as each farm will be different.
Business / Corporate Tax Planning Ideas
Corporations with year ends after July 6th can declare and deduct a bonus in the 2022 fiscal year but defer paying it until 2023. In this way, the business can deduct the expense in the current fiscal year, but the individual does not include the amount in income until 2023, the year in which the bonus is received.
However, the bonus must be paid within 179 days following the fiscal year end of the corporation and the payroll deductions must be remitted with the regular payroll remittance for that pay period, usually by the 15th of the month following payment.
If you have loaned or advanced amounts to your corporation, consider repaying this amount instead of taking otherwise taxable distributions, such as salaries or dividends. Alternatively, consider charging interest on the loan which, in some provinces, reduces the amount of certain taxes paid, such as payroll levies.
In determining the appropriate mix of salaries, dividends or other payments, contact your Chartered Professional Accountant. Caution should be exercised to ensure sufficient salary is taken to maximize deductions such as for RRSPs.
Gifts and Awards
Employers can give employees two gifts per year, not exceeding $500, on a tax-free basis. In addition, employers can give employees two awards per year, not exceeding $500, on a tax-free basis. Gifts would mark special occasions such as marriage, birthdays, birth of a child, etc.; whereas, awards would honour employment achievements such as years of service, service excellence, safety awareness and other such achievements.
If the cost of the gift or award is over the $500 limit, only the value above $500 would be included in the employee's T4 as a taxable benefit. If multiple gifts or awards are presented, one or more of them may have to be included as a taxable benefit in order to allow another gift or award, that is less than $500, to be allowed on a tax-free basis.
NOTE: The gifts mentioned above must be non-cash gifts. If you give employees cash bonuses or cash-like bonuses (gift certificates, etc.) these must be included on the employees' T4 slips and taxed as regular salary. The Canada Revenue Agency recently changed their administrative policy on gift cards and in some cases, they are no longer considered a taxable benefit. In order for this to apply, the following conditions must be met:
- It comes with money already on it and can only be used to purchase goods or services from a single retailer or group of retailers identified on the card
- The terms and conditions of the gift card clearly states that the amounts loaded to the card cannot be converted to cash
- The employer must keep a log to record the gift card information that includes the name of the employer, the date the card was given to the employee, the reason for providing the card, the type of gift, the amount and the name of the retailer on the card.