The tax filing season is right around the corner, and new changes have been put into effect for the 2021 tax year. With a second year under the effects of the pandemic, there’s several changes that may have an impact on your situation, including new credits and deductions that you may be eligible for.
To make things simple, we’ve provided a breakdown of how these changes will affect you, and we’ve also put together 9 of the most important changes you should know about when filing your return in 2022.
- Tax brackets and many contribution amounts and limits have been increased to account for rising living costs.
- Work-from-home tax credit amount has increased to $500 this year.
- There’s a number of new or updated credits and deductions that you may be eligible for.
1. Repaying COVID-19 benefits
If you received COVID-19 benefits from the CRA in 2021, such as the Canada Recovery Benefit (CRB), Canada Sickness Recovery Benefit (CSRB) or Canada Recovery Caregiving Benefit (CRCB) you will receive a T4A slip with the relevant information you need for your tax return.
If you received the CRB and your net income after certain adjustments is more than $38,000, then you may have to repay all or part of the benefits you received in 2021.
If in 2021 you have already repaid all or part of COVID-19 benefits received, you can choose which year to claim the tax deduction for the repayment on, either the year you received the benefit, or the year you repaid it.
Plus, any one-time provincial payments to help you through COVID-19 will not be taxable and you don’t need to report them as income on your 2021 tax return.
2. You can claim up to $500 for work-from-home expenses
Making a return from last year, you can once again claim the work-from-home tax credit. The maximum claim amount has also been increased from $400 to $500 for tax year 2021. If you’ve been keeping track of your expenses, you can go ahead and claim your calculated total. Otherwise, you can use the flat rate method of $2 for each day worked from home during the pandemic.
3. The Basic Personal Amount (BPA) has been increased
As part of their policy to continue increasing it over time until it reaches $15,000 in 2023, the government increased the Basic Personal Amount for the 2021 tax year to $13,808. This means that every Canadian will get a slight boost to their return this year, and it’s likely you can expect another increase next year as well.
4. Tax brackets have shifted to account for inflation
The government has adjusted tax brackets for 2021 to maintain buying power for Canadians as prices of goods continue to slowly increase.
The new federal tax brackets for 2021 are as follows:
- $0 to $49,020 of income (15%)
- More than $49,021 to $98,040 (20.5%)
- More than $98,041 to $151,978 (26%)
- More than $151,978 to $216,511 (29%)
- $216,512 and higher (33%)
The adjustment upwards means that Canadians on the edge of a tax bracket might find themselves shifted into a lower bracket this year and pay less taxes because of it.
5. The TFSA limit remains unchanged
The TFSA contribution limit will remain at $6,000 for the year. This means that if you’ve had an account since 2009, were 18 years of age and have been a resident of Canada throughout that period, the cumulative total you can have in your TFSA is $81,500.
6. New OAS limit amounts
The OAS is designed to provide retirees with a source of income to support their retirement. However, if your income is over certain limit amounts, you might find your OAS amount reduced, and even canceled entirely.
For the 2021 tax year, if your taxable income was over $79,845, you would need to repay some of your OAS. Similarly, if your taxable income was over $129,757, you would have not received any OAS payments.
7. Canada Pension Plan maximum contributions have been increased
The pension rate amount for Canada Pension Plan (CPP) contributions has gone up more than usual. The maximum amount for employees and employers in 2022 will be $3,766.10 in Québec and $3,499.80 in the rest of Canada.
Note that any self-employed individuals can contribute double the amount of regularly employed workers to account for both the business and the employee sides of the contribution. This means that their maximum contribution amount will be $6,999.
8. RRSP dollar limit is increased
The RRSP annual dollar limit for tax year 2021 is $27,830. Remember that your RRSP contribution limit is capped at 18% of your earned income in the previous year. This means the dollar limit is the maximum amount you can contribute regardless of your income. In 2022, the RRSP dollar limit increased to $29,210.
9. Changes to tax credits you need to know
Some credits have been added, changed, reinstated, or expanded for the 2021 tax year.
Below are some of the Federal changes to tax credits:
Disability Tax Credit: The eligibility requirements for this non-refundable credit have expanded and are more flexible this year. Now, they include an updated list of mental functions, a longer list of activities in determining time spent on life-sustaining therapy, and reducing the minimum required frequency for therapy.
Northern Residents Deduction: For the 2021 tax year, the travel component of the Northern Residents Deduction has been made available to residents with no employer benefits, making it more accessible and giving more freedom to travelers.
RRSP Limit Calculation: Postdoctoral Fellowship income will now be considered earned income for RRSP accounts, and this year taxpayers are allowed to adjust 10 years back.
Canada Workers Benefit: The Canada Workers Benefit has been updated with increased amounts and will now be available to more individuals to increase accessibility. For those with an eligible spouse, the secondary earner exemption was introduced for this tax year.
Small Business Air Quality Improvement Tax Credit: This is a refundable tax credit of up to 25% on any eligible air quality improvement expenses you may have had while running a small business. This applies to the purchase of mechanical Heating, Ventilation, and Air Conditioning (HVAC) systems and high-efficiency air filtration devices.
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Below are some of the changes to tax credits by province:
Home Renovation Tax Credit:This new non-refundable tax credit allows homeowners to claim eligible home renovation expenses.
The Active Families Benefit: This benefit has been reinstated for tax year 2021.
Manitoba Teaching Expense Tax Credit: This new credit allows a 15-percent refund for up to $1,000 in supplies ($150 maximum refund) with the same eligibility criteria of the existing federal Eligible Educator School Supply Tax Credit.
The Seniors’ Home Safety Tax Credit: This new credit supports seniors in making their homes safer and more accessible, with a credit of 25% up to a max $10,000 in eligible expenses.
Childcare Access and Relief from Expenses (CARE) Tax Credit: For tax year 2021 this credit will be increased by 20%.
Temporary Ontario Jobs Training Tax Credit: This new credit allows individuals to claim 50% of eligible expenses for 2021 to a max credit of $2,000.
Ontario Apprenticeship Training Tax Credit: This credit has expired for tax year 2021.
Equity Tax Credit: This credit has been extended for tax year 2021.
Prince Edward Island
Children’s Wellness Tax Credit: This new non-refundable $500 credit for families with children under 18 for eligible activities related to the children’s well-being.
Physical Activity Tax Credit: This new physical activity tax credit allows families to claim up to $2,000 in eligible expenses and receive 8.7% back to a maximum of $174.
Tax Credit for Volunteer Respite and Respite for Caregivers: After the changes to the tax credit for caregivers in 2020, the tax credit for volunteer respite and the tax credit for respite for caregivers has been abolished in tax year 2021.
Tax credit for shares of Capital régional et coopératif Desjardins: The rate of the tax credit for the acquisition of Capital régional et coopératif Desjardins has decreased from 35% to 30% for shares acquired after February 28, 2021.
Labour-sponsored funds tax credit: Fondaction shareholders tax credit rate has decreased from 20% to 15% as of June 1, 2021.