While it may not be a cause for celebration, any signs of normalcy — even doing our taxes — could be welcome given the uncertainty we’ve experienced in recent months. Here’s a quick guide that we hope will help you as you prepare to file.

Taxes continue to be a tad more complicated than in previous years. Although many expected to see a return to some form of normal life in 2021, particularly with the introduction of COVID-19 vaccines, the pandemic continues to challenge us. Some Canadians may have experienced changes in lifestyle, income and spending habits throughout 2021 — changes that could have an impact on their tax returns.

In the face of ongoing uncertainty, the best defense is often preparedness. “It’s never too early to turn your mind to taxes and start gathering your information,” says Nicole Ewing, Director, Tax and Estate Planning, TD Wealth. Ewing also says that if you have questions about your return, it’s always best to speak with a financial planner, advisor or tax lawyer. As you prepare to tackle your taxes, here are a few things she wants you to consider.

The basics

When are the tax deadlines?

This year’s tax filing deadline for those who are not self-employed is May 2, 2022. Generally, the deadline is April 30, but in 2022 this date falls on a Saturday. For those who are self-employed (or have a spouse or common-law partner who is) the filing deadline is June 15, 2022. However, any amount owing on your taxes must be paid on or before May 2, 2022. In Quebec, both the filing and payment deadlines are also May 2.

What is my BPA limit?

If you have a net annual income equal to or below $151,978, your federal Basic Personal Amount (BPA) for the 2021 tax year is $13,808. If you have a net annual income above $216,511, it’s $12,421. Between those incomes, there is a gradual decrease in your BPA. For more information on BPAs and to find your tax bracket, visit the Canada Revenue Agency’s (CRA) website.

How much can I contribute to my Registered Retirement Savings Plan (RRSP)?

Until March 1, 2022, you can contribute to your RRSPs to reduce your 2021 taxable income. Your annual contribution limit is 18% of your 2020 earned income, to a maximum of $27,830, less your pension adjustment if applicable, plus any unused RRSP room from previous years. Spouses may wish to consider making spousal RRSP contributions to allow investments to grow on a tax-deferred basis in their spouse’s name. Ewing says Canadians should be aware that any withdrawals from a spousal RRSP may be subject to attribution rules if they are withdrawn within three taxation years of the contribution — meaning the withdrawn funds would be included as taxable income for the contributing spouse.

What about my TFSA?

While Tax-Free Savings Account (TFSA) contributions are not strictly a “tax time” event, thinking about RRSPs may inspire you to consider other tax-efficient investments. The federal government confirmed that the 2022 TFSA contribution limit is $6,000. For those who have not yet contributed to a TFSA but have been eligible since the TFSA was first introduced in 2009, the cumulative contribution limit is now $81,500. Ewing points out that if an eligible member of your family has not yet reached their cumulative contribution limit, gifting funds for use towards a TFSA can provide tax-sheltered investment income without attracting the attribution rules on the invested funds.

To find out more about your personal RRSP and TFSA limits, you can log into My Account on the CRA website, or use the MyCRA app.

Maximum pensionable earnings

For 2021, the maximum annual pensionable earnings are $61,600, with a basic exemption amount of $3,500. The maximum annual pensionable earnings increased to $64,900 for 2022, with the basic exemption amount remaining at $3,500.

Taking a closer look at your taxes

If you received COVID-19 benefits from the federal government in 2021

Many of us hoped that the COVID-19 pandemic would have subsided by 2022. While the pandemic still exercises control over our lives, a variety of relief programs are available. If you received COVID-19 financial benefits in 2021, you’ll be required to report them within your tax filing. Programs include the Canada Recovery Benefit (CRB), Canada Recovery Sickness Benefit (CRSB) and the Canada Recovery Caregiving Benefit (CRCB), to name a few. Some Canadians may be surprised to learn these benefits are fully taxable. That means that you could owe outstanding taxes if insufficient funds were withheld when the benefit was provided to you. The CRA issues a T4A form to any individual who received these benefits in 2021, including details related to repayment if applicable.

If you received federal COVID-19 benefits in error, you may be required to repay those funds. The federal government has provided flexible repayment options for those affected. For more details, visit the CRA website or speak to your tax advisor.

If you were required to work from home in 2021

Last year, the federal government also introduced new home office expense rules for those who worked from home due to the pandemic. Employees who worked from home more than 50% of the time for a period of at least four consecutive weeks in 2020 could claim $2 a day to a maximum of $400 per individual for those using the “flat rate method,” without needing any verification from an employer. The program was renewed in 2021, and the maximum increased to $500 per individual. If you are an employee and your work-from-home expenses exceeded $500, you can claim the full amount using the “detailed method” for calculation. Details pertaining to the flat rate calculation method versus the detailed calculation method, including a list of eligible expenses, can be found on the CRA’s website.

If you’re retired or nearing retirement

Continued Canadian Pension Plan (CPP) and Old Age Security (OAS) hikes are part of a federal and provincial multi-year effort to boost contributions and benefits. If you’re a retiree or nearing retirement, Ewing recommends being mindful of these ongoing changes, but wants benefit recipients to understand the changes may not have an appreciable impact in the short term. Those aged 75 and older, however, will see an automatic 10% increase of OAS pension, as of July 2022.

She says since overall tax payable is dependent on your different income sources (CPP, Registered Retirement Income Fund, private pensions, plus OAS), “you might be hitting certain thresholds that could actually result in a clawback of OAS.” To avoid this, she suggests exploring pre-retirement withdrawal strategies and carefully considering how to best draw on your various retirement income sources to minimize taxes and maximize government benefits. It may be beneficial to contact a tax specialist if you have any questions, or if you need help optimizing your retirement income.

If you hold assets in the U.S.

If you hold certain kinds of foreign property that have a combined cost of over CDN$100,000, including securities and rental properties, you’ll need to file a T1135 form with your tax return. Ewing cautions that those who hold foreign property should be looking at the combined cost of all their foreign assets, rather than each asset individually: “That’s usually where people slip up.” She adds that when calculating the cost for tax purposes, Canadians should remember that the value is based on the exchange rate used when the asset was acquired, rather than the current exchange rate. If you’re unsure how to assess your assets for tax purposes, it may be helpful to consult a financial professional.

For snowbirds who elected to rent out U.S. property in 2021, you may have U.S. and/or Canadian filing obligations. The rules related to rental income are complex and there are differences between how certain amounts are calculated for U.S. versus Canadian tax purposes. Even if you are currently using the property for personal use only, be sure to collect and store any receipts for improvements made to the property during the year. This will help you meet your tax obligations in future years if you eventually choose to sell.

Ewing recommends consulting a tax professional if you have any questions about your taxes. For those working with multiple financial and tax professionals, she adds that you can avoid potential complications by ensuring there are open lines of communication between all parties.

If there’s one lesson to be learned, however, it’s that tax season should not be viewed as a singular event, says Ewing. “Taking into consideration not only your current financial and tax situation, but your future situation as well, will help you to make better tax decisions overall,” she says.

TAMARA YOUNG

MONEYTALK LIFE

ILLUSTRATION

DANESH MOHIUDDIN