A new year often brings with it tax changes. To help you understand and prepare for any upcoming changes, we compiled a summary of the most significant federal tax changes that may affect your 2022 personal income tax return, as well as changes that may help you save taxes in 2023 and beyond.
Taxable COVID-19 support
Many COVID-19 benefits offered by the federal government are taxable. This includes the Canada Recovery Caregiving Benefit (CRCB), Canada Recovery Sickness Benefit (CRSB), and the Canada Worker Lockdown Benefit (CWLB) that were available in 2022. If you've received these benefits, the Canada Revenue Agency (CRA) will issue a T4A slip to report amounts paid to you under these programs, which you will need to include in your income on the 2022 tax return.
The T4A slip will also report the 10% income tax withheld on the CRCB, CRSB, and CWLB. You should know that depending on your total income, deduction, and credits for the year, you may end up owing income tax when your return is due. It would be prudent to set aside sufficient funds to cover this tax liability and ensure you pay any owed taxes by May 1, 2023 (as April 30 falls on a Sunday) to avoid interest and penalties.
Some COVID-19 benefits offered by the provincial governments are also taxable. You should check to make sure that you have the relevant slips from your provincial government and include the taxable amounts in income on your 2022 tax return.
Repayment of federal COVID-19 benefits
If you repaid an amount in 2022 related to the federal COVID-19 benefits that you previously received, the CRA has indicated that the amount repaid will be included in your T4A slip.
You can choose to claim a deduction for the repaid amount in the year that the benefit was received or in the year that the benefit was repaid. You also have the option of splitting the deduction between these two years, provided you don't deduct more than your repayment.
This choice in the timing of your deduction can affect your taxes depending on your income, deductions, and credits available in each of the two years. Where it is beneficial for you to deduct the repayment in your 2020 or 2021 return but it has already been assessed, the CRA announced that a new Form T1B, Request to Deduct Federal COVID-19 Benefit Repayment in a Prior Year, can be filed with your 2022 tax return to simplify the process. This means that you will not need to request a T1 adjustment for a prior year's tax return related to COVID-19 benefit repayments.
Note that if you repay a benefit amount after 2022, you can only claim a deduction in the year of repayment.
Immediate expensing of capital property for self-employed individuals
If you carry on an unincorporated business and acquired a capital property in 2022, you may be eligible to claim a 100% deduction of the expenditure this year. The immediate expensing rules allow eligible individuals and partnerships to take a full deduction of up to $1.5 million of capital property acquired on or after January 1, 2022. The property must become available for use before 2025 and certain capital cost allowance classes are not eligible for the enhanced deduction.
While immediate expensing was available to Canadian-controlled private corporations (CCPCs) since 2021, 2022 will be the first year in which eligible individuals and partnerships can take advantage of the deduction. Note that the $1.5 million annual limit must be shared among members of an associated group of eligible persons (including CCPCs) and partnerships.
To find out more about this change, read our article: Immediate expensing of certain depreciable property.
Air Quality Improvement Tax Credit for small businesses
The new temporary Air Quality Improvement Tax Credit may be claimed by eligible businesses, including a sole proprietor, and provides a refundable credit of 25% of qualifying expenditures made between September 1, 2021, and December 31, 2022.
Generally, qualifying expenditures must be intended to increase outdoor air intake or improve air cleaning and are subject to a maximum of $10,000 per location and $50,000 across all locations. These limits would need to be shared among affiliated businesses. Note that qualifying locations are properties used primarily in the course of ordinary commercial activities in Canada (including rental activities) but do not include a home or an apartment.
If you take advantage of this credit, the amount received is considered government assistance and is generally included in income in the taxation year in which it is received (i.e., in this case, the taxation year in which the credit is claimed). Alternatively, you may elect to reduce the capital cost of the depreciable property by the amount that would otherwise be included in income.
For more details on this new credit, read our article: Government proposes a new air quality improvement tax credit for small businesses.
Home office expense deduction
Similar to 2020 and 2021, if you worked more than 50% of the time from home for a period of at least four consecutive weeks in 2022 due to COVID-19, you may be eligible to claim a home office expense deduction on your tax return. Eligible employees have the option of choosing between two methods for claiming a home office expense deduction for 2022. The two methods are as follows:
- Temporary flat rate method ─ provides a deduction of $2 per day for each day the eligible employee worked from home, up to a maximum of $500, with no need to track expenses or obtain forms from your employer.
- Detailed method ─ allows an eligible employee to claim the employment portion of actual home office expenses paid, which would require itemizing expenses and obtaining a signed form T2200S or T2200 from your employer.
For more information on the employee home office expense deduction, refer to CRA's webpage, which includes a calculator and FAQs.
If you are self-employed, you have much more flexibility and can generally deduct reasonable expenses incurred to earn business income, such as stationery supplies used in the business. Self-employed individuals can also deduct workspace in the home expenses if the workspace is either:
- The individual's principal place of business; or
- Used exclusively to earn business income and is used on a regular and continuous basis for meeting clients, customers, or patients of the individual in respect of the business.
Where one of these conditions is met, deductible amounts include the business use portion of a reasonable allocation of expenses related to your home office, including capital cost allowance, mortgage interest, and property taxes.
Enhanced Canada Pension Plan
As you are likely aware, your Canada Pension Plan (CPP) contributions have been increasing annually since 2019 and will continue to increase every year until 2023 (or 2024 if your income exceeds a new earnings ceiling). Similar enhancements were made to the Quebec Pension Plan (QPP).
When you file your personal income tax return for the 2022 tax year, remember that your CPP/QPP contributions consist of a base amount and an enhanced amount, which are consistent with the previous two years. While a non-refundable tax credit on the CPP/QPP base amount continues to be available, a tax deduction can also be claimed on the enhanced portion of the CPP/QPP.
Tax-free savings account contribution limit
For 2023, the tax-free savings account (TFSA) annual contribution limit increases to $6,500 and any unused contribution room will carry forward. Contributions to a TFSA aren't tax deductible and when money is withdrawn, the accumulated contributions and income received are not taxable.
How BDO can help
If you have any questions about any of these tax changes, or how they may apply to your situation, please contact one of our trusted BDO advisors.
The information in this publication is current as of January 4, 2022.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.