The tax filing season is fast approaching, and rule changes have been implemented for the 2021 tax year. With the pandemic now in its second year, there are various changes that could affect your status, including new credits and deductions that you may be eligible for.
This article consists of key changes you should be aware of when completing your 2021 tax return and it also outlined how these changes will affect you.
1. Repayment of COVID-19 benefits
If you earned COVID-19 benefits in 2021, such as the Canada Recovery Benefit (CRB), the Canada Sickness Recovery Benefit (CSRB), or the Canada Recovery Caregiving Benefit (CRCB), you will receive a T4A slip with the information you need to complete your tax return.
If you received the CRB and your net income after certain adjustments exceed $38,000 in 2021, you may be required to repay all or part of your benefits.
If you have already repaid all or a portion of your COVID-19 benefits in 2021, you may claim the tax deduction for the repayment in either the year you got the benefit or the year you repaid it.
Additionally, any one-time provincial payments made to assist you with COVID-19 will be tax-free, and you will not be required to disclose them on your 2021 tax return as income.
2. Up to $500 in work-from-home expenses can be claimed
You can reclaim the work-from-home tax credit if you filed a return last year. For the tax year 2021, the maximum claim amount has also been increased from $400 to $500. If you’ve kept track of your expenses, you may claim the total you calculated. Alternatively, you can use the flat rate method of $2 for each day worked from home during the pandemic.
3. Increase in the Basic Personal Amount (BPA)
The government increased the Basic Personal Amount to $13,808 for the 2021 tax year as part of their policy of gradually raising it until it reaches $15,000 in 2023. This implies that every Canadian’s return will increase slightly this year, and it’s probable that you’ll see another increase next year as well.
4. Tax brackets have been indexed to inflation using the 2.4 % rate
The government has amended tax brackets for 2021 to maintain Canadians’ purchasing power as commodity prices continue to slowly rise.
The following are the new federal tax brackets for 2021:
- $0 to $49,020 of income (15%)
- $49,021 to $98,040 (20.5%)
- $98,041 to $151,978 (26%)
- $151,978 to $216,511 (29%)
- $216,512 and higher (33%)
The upward adjustment implies that Canadians on the edge of a tax bracket may find themselves moved into a lower tax rate this year, resulting in lesser taxes.
5. TFSA limit remained at $6,000
The TFSA contribution limit will remain at $6,000 for the year. This indicates that if you’ve maintained an account since 2009, were at least 18 years old, and were a resident of Canada throughout that time period, the maximum total in your TFSA should be $81,500.
6. New OAS limit amounts
The OAS is aimed to provide retirees with an income stream to support their retirement. However, if your income exceeds certain limits, you may find that your OAS benefits are decreased or even terminated outright.
If your taxable income exceeded $79,845 in the 2021 tax year, you would be required to repay a portion of your OAS. Similarly, if your taxable income exceeded $129,757, you would have been ineligible to collect OAS benefits.
7. Government Pension Contributions
The pension rate for Canada Pension Plan (CPP) contributions has surged to a larger amount than typical. In 2022, the maximum amount to employees and employers will be $3,766.10 in Quebec and $3,499.80 elsewhere in Canada.
To account for both the business and employee sides of the contribution, self-employed individuals can contribute twice the amount of regularly employed workers. This equates to a maximum contribution of $6,999.
8. The RRSP dollar limit is increased
The annual dollar limit for RRSP is $27,830 for the tax year 2021. Bear in mind that your RRSP contribution ceiling is capped at 18% of your previous year’s earned income. This means that the dollar limit is the maximum amount you can make regardless of your income. The RRSP dollar limit will increase to $29,210 in 2022.
9. Must-know Tax Credit Changes
For the 2021 tax year, certain credits have been added, modified, reinstated, or expanded.
The following are some of the federal tax credit changes:
- Disability Tax Credit: This non-refundable credit’s eligibility requirements have been expanded and made more flexible this year. They now comprise an updated list of mental functions, a longer list of activities to consider when evaluating how much time should be spent on life-sustaining therapy, and a reduction in the minimum required frequency of therapy.
- Northern Residents Deduction: Starting with the 2021 tax year, the travel component of the Northern Residents Deduction will be available to residents with no employer benefits, increasing accessibility and offering more freedom to travelers.
- RRSP Limit Calculation: Postdoctoral Fellowship income is now considered earned income for RRSP accounts, and taxpayers could adjust up to ten years back.
- Canada Workers Benefit: The Canada Workers Benefit has increased in amount and will now be accessible to a broader range of people in order to improve accessibility. The secondary earner exemption was introduced for those with an eligible spouse this tax year.
- Small Business Air Quality Improvement Tax Credit: a refundable tax credit of up to 25% on eligible air quality improvement expenses incurred while operating a small business. This includes mechanical heating, ventilation, and air conditioning (HVAC) systems as well as high-efficiency air filtration equipment.
There are many changes on the horizon, and each has its own implications. Some will impact you directly, while others may influence other aspects of your life. Keep an eye out for new developments surrounding these tax changes in the coming year, and take the time to better understand how they might affect you. With that in mind, be sure to stay tuned to IDM for updates about further details as we learn more about these tax changes in early 2022!
