As a newcomer to Canada, it’s important you’re aware of Canadian taxation rules to file your tax returns accurately and take advantage of benefits and credits you’re entitled to. This year, the Government of Canada introduced several new tax measures and modified some existing guidelines, which you should know about before you file your 2021 taxes.
In this article, we’ll review some of the federal and provincial changes that may affect your tax situation. This update includes:
- Changes to federal tax brackets
- Increase in Basic Personal Amount (BPA)
- Benefits for home office expenses during COVID-19 extended
- Climate Action Incentive Payment
- Repayment of COVID-19 benefits
- Personal Protective Equipment costs
- Canada Workers Benefit (CWB)
- Stock options deduction
- TFSA contributions for 2022
- RRSP dollar limit increased
- CPP and QPP contributions for 2022
- Old Age Security (OAS) increases
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The federal government revised income tax brackets to adjust for inflation. The 2021 federal tax brackets are (for income earned in 2021 and taxes paid in 2022):
- $0 to $49,020 of income: 15 per cent
- More than $49,021 to $98,040: 20.5 per cent
- More than $98,041 to $151,978: 26 per cent
- More than $151,979 to $216,511: 29 per cent
- $216,512 and above: 33 per cent
Note that each province has its own tax brackets and those are adjusted based on provincial indexation calculations.
The Basic Personal Amount (BPA) is a non-refundable tax credit that can be claimed by all individuals. Individuals whose income is below the BPA threshold are eligible for a full reduction in federal income tax, while individuals who have a higher income are entitled to a partial reduction in taxes.
For the 2020 tax year, the BPA for individuals with a net income of $150,473 or less was $13,229. For the 2021 tax year, the BPA was increased to $13,808. This aligns with the government’s aim of increasing the BPA to $15,000 by the 2023 tax year.
Special measures allowing people to claim home office expenses when working at home due to COVID-19 have been extended to 2021. The maximum amount you can claim using the temporary flat-rate method was increased to $500 ($2 per day for a maximum of 250 days). For 2020, employees could only claim up to $400 ($2 per day for a maximum of 200 days).
Alternatively, employees who work from home can continue using the detailed method to calculate their claim amount, provided they submit a completed and signed Form T2200S or Form T2200 from their employer.
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The Climate Action Incentive Payment (CAIP) is a tax-free amount paid to help eligible individuals and families offset the cost of federal pollution pricing. It provides an advance repayment of the federal carbon tax in provinces where it is in place (Ontario, Manitoba, Saskatchewan, and Alberta).
In previous years, it was claimed on the tax return in the form of a refundable tax credit known as Climate Action Incentive (CIA) credit. However, the government announced that, for 2021 returns, this will no longer be the case. Instead, they will start paying it in quarterly instalments in April, July, October, and January. For this year only, the April payment will be combined with the July payment to give the CRA time to implement the new system.
If you received the Canada Recovery Benefit (CRB) and your net adjusted income was over $38,000, you may have to repay some or all of the COVID-19 benefits you received in 2021.
A deduction for the repayment of benefits can normally be claimed only in the year they are repaid. However, in the case of COVID-19 benefits (such as CRB), a temporary rule will give taxpayers the option to instead claim it in the year the benefits were received. This temporary rule will only be in effect for 2021 and 2022.
If you received a one-time payment from your provincial government to help you during COVID-19, this payment is exempt from taxes and you are not required to report it as income on your 2021 tax return.
A new measure for 2021 allows employees to claim the cost of personal protective equipment (PPE), such as disposable masks, disposable gloves, and sanitizing liquid if their employer requires them to pay for and use these items while carrying out their employment duties.
Employees will need to submit Form T2200 certified by their employer in order to claim these supplies.
The Canada Workers Benefit is a refundable tax credit for low-income workers to encourage them to participate in the workforce.
For 2021, the income thresholds at which the benefit is phased out were significantly enhanced so that:
- Single taxpayers with net income up to $32,244 will now get a partial benefit (up from $24,573 in the previous year).
- Couples with net income up to $42,197 will now get a partial benefit (up from $37,173 in the previous year).
A new “secondary earner exemption” also allows the spouse or common law partner with the lower working income to exclude up to $14,000 of their working income for the purpose of the phase out.
Employees who exercise stock option benefits must include the value of the benefit in their income. However, assuming certain conditions are met, they can claim an offsetting 50 per cent deduction. This has the effect of giving it the same tax treatment as capital gains.
Effective for options granted on or after July 1, 2021, there is a limit of $200,000 of stock option benefits per year eligible for the 50 per cent deduction.
Employees of Canadian small business corporations and start-ups whose annual gross revenue does not exceed $500 million are excluded from this rule.
The annual Tax Free Savings Account (TFSA) dollar contribution limit is still $6,000 CAD (the same limit as 2021). However, the annual dollar limit is just one component in the calculation of available contribution room. You may also have unused contribution room from previous years which carries forward, or you may have made a withdrawal in 2021 (which is added to your contribution room for 2022).
The Registered Retirement Savings Plan (RRSP) is a tax-deferred savings plan designed to help you grow your money for retirement. You can contribute up to 18 per cent of your previous year income to this plan, up to a specified dollar limit. The annual RRSP dollar limit for 2022 increased to $29,210 from $27,830 in 2021.
If your earnings are between $3,500 CAD and $64,900 CAD in 2022, the percentage of your income youl need to contribute to the Canada Pension Plan (CPP) increased from 5.45 per cent to 5.7 per cent. For contributions to the Quebec Pension Plan (QPP), the rate increased from 5.9 per cent to 6.15 per cent.
Taxpayers born on or before June 30, 1947 received a $500 bonus Old Age Security (OAS) payment in August 2021. Although this bonus payment is taxable, it will not be included with regular OAS benefits on the T4A (OAS) slip. As such, it will not be subject to clawback if the taxpayer’s income for 2021 exceeds $79,845.