What’s new for the income tax returns
The income tax brackets have shifted to account for inflation. The basic exemption amount increased to 14,938 today in your paycheck! For your easy reference, the income bracket is summarized below.
The federal tax rate for 2022
The federal tax rate for 2021
50, 197 or less
50,197 to 100,392
49,020 to 98,040
100,392 to 155,625
98,040 to 151,978
155,625 to 221,708
151,978 to 216,511
basic personal amount
Government assistance is typically taxable in the year received. If you received any of the following in COVID-19 benefits in 2021, then this is taxable and will be included in your 2021 income:
- Canada Recovery Benefit (CRB),
- Canada Worker Lockdown Benefit (CWLB),
- Canada Emergency Response Benefit (CERB),
- Canada Emergency Student Benefit (CESB).
Employees who need to work from home due to COVID-19 Pandemic will be able to claim up to $500 in 2021 and $500 in 2022 of home office expenses without the need to track detailed expenses
Tax deduction available for a small business owner
1. Immediate expensing of up to 1.5 M of capital expenditures for CCPCs
April 19, 2021, the federal budget has proposed that Canadian Controlled Private Companies can fully expense up to $1.5M per year of certain expenditures. Most CCA classes will qualify for immediate expensing. However, classes 1 (buildings) and 14.1 (indefinite life intangibles) do not qualify for immediate expensing. The announcement is great news for many CCPCs across the country and could save them a significant amount of money in taxes. This means the taxable income will be significantly reduced in the first year.
Suppose you own assets that are already eligible for enhanced deductions under the existing accelerated investment incentive rules, such as the full expensing for manufacturing and processing machinery and equipment. In that case, your maximum deduction will not be reduced.
Only assets acquired on or after April 19, 2021, and before 2024 may be fully expensed if both of the following conditions are met. 1, Neither the taxpayer nor a non-arm’s length person previously owned the property. 2, The property has not been transferred to the taxpayer on a tax-deferred “rollover” basis.
2. Air Quality Improvement Tax Credit
On December 14, 2021, The Fall Economic Statement introduced a new temporary refundable tax credit for sole proprietors and CCPCs with taxable capital employed in Canada of $15M or less. It encourages small businesses to invest in upgrading ventilation and air filtration systems. Qualifying expenses incurred from September 1, 2021, to December 31, 2022, are eligible for a 25% refundable tax credit.
Qualifying expenditures would include expenses directly attributable to the purchase, installation, upgrade, and/or conversion of mechanical HVAC systems, as well as the purchase of devices designed to filter air using high-efficiency particulate air (HEPA) filters.
The maximum credit would be $10,000 per qualifying location and a maximum of $50,000 across all qualifying locations. These limits must be shared by affiliated businesses and costs and Costs related to routine repairs and maintenance; financing costs must be paid to an arm’s length person.
What affects you if you do business in a foreign digital platform?
Starting July 1, 2021, foreign digital vendors and digital marketplace platforms will need to register for, collect and remit GST/HST on their Canadian sales. A simplified registration system can be used to charge GST/HST to Canadians who do not have a GST/HST registration number.
Effective July 1, 2021, foreign-based digital platforms offering short-term lodging in Canada will also have to register for, collect, and remit GST/HST. Platform operators and third-party suppliers will be jointly and severally liable for the collection and remittance of GST/HST when the third-party supplier provides false details to the platform operator.
Refundable tax credit for farmers
The 2021 fall economic update on December 14 has proposed to return fuel charge proceeds directly to the eligible farming business in backstop jurisdictions via a refundable tax credit. The amount of your credit is calculated: eligible farming expenses x the payment rate specified by the Minister of Finance (in 2021: $1.47 per $1000 in expenses, in 2022: $1.73).
Under the carbon pollution pricing system (i.e., carbon tax), the federal government returns the proceeds to provinces that adopt the federal system. “Backstop jurisdictions” that have not met federal requirements include Ontario, Alberta, Manitoba, and Saskatchewan.
Entities actively engaged in farming include corporations, individuals, partnerships, and trusts. The total farming expenses are $25,000 or more, and all or a portion of the costs are attributable to backstop jurisdictions
Eligible expenses are itemized deductions in calculating taxable income from farming for tax purposes. They exclude inventory adjustments, transactions with non-arm length parties, and capital cost allowance. Corporations whose taxation year is not in congruence with a calendar year can prorate eligible farming expenses in each calendar year.
Vacant properties owned by non-residents will be taxed.
Starting in 2022, a new federal tax on vacant homes owned by non-residents would begin. The first payment and the first Underused Housing Tax return would be due April 30, 2023. The tax is 1% of the fair market value of the vacant residential properties owned by non-residents.
The vacant property tax that can be exempted:
- On December 14, 2021, The Fall Economic Statement stated that if the home is the principal residence for the owner, their spouse, or a child (attending school), then the non-resident will get a tax exemption
- A non-resident will also be exempt from this tax if the cottage is owned and used by the owner or their spouse for at least four weeks of the year and is not located in a city with 30,000 or more people.
To understand the impact of tax changes, it is good to know what they are and how they will affect each taxpayer. The information in this document is for general informational purposes only and not intended as advice. You should contact your advisor for more information about this topic and get advice about it. Qing Shi CPA is happy to help if you do not have an advisor.