CRA UPDATES - PERSONAL TAXES

TAX UPDATES FOR 2023

First Home Savings Accounts (FHSA): Legislation to create the new tax-free FHSA was recently passed, paving the way for it to be launched as early as April 1, 2023. This new registered plan gives prospective first-time homebuyers the ability to save $40,000 on a tax-free basis towards the purchase of a first home in Canada.

Like a RRSP, contributions to an FHSA will be tax deductible, but withdrawals to purchase a first home, including from any investment income or growth earned in the account, will, like a TFSA, be non-taxable. The new legislation confirms that a first-time homebuyer can use both the FHSA and the existing Home Buyers’ Plan to purchase their first home

Multigenerational Home Renovation Tax Credit: Jan. 1 also marks the beginning of this new credit, which is equal to 15 per cent of eligible expenses (up to $50,000) incurred for a qualifying renovation that creates a secondary dwelling to permit an eligible person (such as a senior or a person with a disability) to live with a relative.

The TFSA limit has been increased

The TFSA contribution limit has increased to $6,500 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 now $81,500.

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 2022 tax year, if your taxable income was over $81,761, you would need to repay some of your OAS. Similarly, if your taxable income was over $134,626, you would not have received any OAS payments. Thanks to the CRA’s new Affordability Plan, seniors aged 75 and over received an automatic 10% increase of their Old Age Security pension, as of July 2022.

First-time home buyers’ tax credit – The amount used to calculate the first-time home buyers’ tax credit has increased to $10,000 for a qualifying home purchased after December 31, 2021.

Home accessibility tax credit – For 2022 and later tax years, the annual expense limit of the home accessibility tax credit has increased to $20,000.

Climate action incentive payment (CAIP) – If you are eligible, you will automatically get the CAIP four times a year. Since it generally takes two weeks to process electronic returns, we recommend that you and your spouse or common-law partner (if applicable) file your 2022 returns electronically by March 10, 2023, to help in receiving the April 14, 2023, issuance. If you don’t receive the April issuance, the payment will be included in a subsequent payment after your returns are assessed. For more information, go to Climate action incentive payment.

TAX CHANGES FOR 2022  - Rates and Limits 

• As expected, several tax rates and limits are changing in 2021.  Federal and provincial income tax brackets are increasing to keep up with inflation. 

• Employment Insurance (EI) Premiums are staying steady at 1.58% in 2022. However, maximum insurable earnings will increase from $56,300 to $60,300. 

• Maximum pensionable earnings, the amount used by the government to calculate Canada’s Pension Plan contributions for the year, is increasing to $64,900, up from $61,600 in 2021. Similarly, the employee and employer contribution rates for 2022 will be increasing to 5.70%, up from 5.45% in 2021. 

• In 2022, the annual contribution limit on the Tax-Free Savings Account (TFSA) remains at $6,000, where it’s been since it was upped for the first time in 2019. If you’ve never contributed to the TFSA and you’ve been eligible to contribute since 2009, you now have $81,500 in total contribution room.  As the name implies, your money grows tax-free in the TFSA. What sets it apart from the Registered Retirement Savings Plan (RRSP) is that you don’t have to pay income tax when you cash out your money.

TAX BREAKS FOR PARENTS

• For the 2021-2022 benefit year beginning July 2021, the maximum annual benefit under the Canada Child Benefit is $6,833 for each child under 6 and $5,765 for children aged 6 to 17.  For parents of disabled children under the age of 18, the Child Disability Benefit has increased to $2,915 for the July 2021 to July 2022 benefit period.  

HOME BUYERS' PLAN 

• The Home Buyers’ Plan (HBP) assists first-time homebuyers in attaining a down payment sooner. It allows those buying a home for the first time to withdraw money from their RRSP without paying any tax. Any money borrowed under the HBP must be paid back over 15 years, beginning in the second year after your initial withdrawal was made. Only funds that have been in your RRSP for at least 90 days can be withdrawn as part of the HBP.  After being frozen for several years, the federal government increased the withdrawal limit back in 2019. Now, those eligible to participate in the program can withdraw up to $35,000 from their RRSP, up from $25,000 in previous years. This means that a couple buying a home together could withdraw a combined $70,000 from their RRSPs to buy their first property.

COVID-19  - Credits & Benefits 

• While CERB (the Canada Emergency Response Benefit) no longer exists, a few other pandemic-related benefits have been extended.  For the 2021 and 2022 tax years, employees forced to work from home due to COVID-19 can claim a flat rate tax credit of up to $500. You’re eligible for this credit if you’ve worked from home more than 50% of the time for a period of at least four consecutive weeks.  Eligible expenses include utilities, home internet, rent, and maintenance and repair costs. Commission employees can also claim home insurance, property taxes, and the lease of electronics such as cellphone, laptop, tablet, etc.  The Canada Recovery Sickness Benefit provides up to $500 ($450 after taxes) for workers unable to work because they are sick, need to self-isolate or have an underlying health condition that puts them at greater risk.  Similarly, under the Canada Recovery Caregiving Benefit, anyone who is unable to work because they need to care for a child or family member due to COVID-19 can receive $500 ($450 after taxes) per week, for up to 44 weeks  Keep in mind that while both CRSB and CRCB deduct a 10% tax at source (so the amount you’ll receive is $450), you may still need to pay additional tax come income tax time, depending on your situation. Both programs have been extended to May 7, 2022.