A new year often brings tax changes. We have summarized the most significant changes that may affect your 2022 income tax return, as well as changes that may impact your tax situation in 2023 and beyond.

New tax brackets

The government has adjusted federal tax brackets to account for inflation. A federal inflation factor of 2.4% was used to shift the 2022 tax brackets to:

• Income of up to $50,197 is taxed at 15%
• Income between $50,197 and $100,392 is taxed at 20.5%
• Income between $100,392 and $155,625 is taxed at 26%
• Income between $155,625 and $221,708 is taxed at 29%
• Income above $221,708 is taxed at 33%

A federal inflation factor of 6.4% will be used to calculate the 2023 tax brackets. It is important to note that Nova Scotia is one of the only provinces that doesn’t adjust provincial tax brackets for inflation.

Basic Personal Amount increase

In 2019, the government set a goal of increasing the Basic Personal Amount (BPA) tax credit in phases until it reaches $15,000 in 2023. The BPA for 2022 increased to $14,398.

Canada Pension Plan (CPP) earnings and contribution increase

The government introduced a CPP enhancement program in 2019.  Originally, the CPP was intended to replace 25% of an individual’s pre-retirement income (up to a specified maximum). In 2019, the government raised contribution rates to replace 33% of pre-retirement income.  The enhanced contributions are being phased in.
For 2022:
• Employee and employer maximum pensionable earnings are $64,900 with a basic exemption of $3,500
• The contribution rate increased by 0.25 % to 5.70% for a maximum contribution of $3,499.80
For 2023:
• Employee and employer maximum pensionable earnings will be $66,600 with a basic exemption of $3,500
• The contribution rate will increase another 0.25% to 5.95% for a maximum contribution of $3,754

Note that for self-employed individuals the 2022 contribution rate is 11.40% to account for both the employer and employee sides of the contribution.

Old Age Security (OAS) claw back limits increase

The 2022 claw back thresholds are:

• Minimum claw back threshold $80,761
• Maximum claw back threshold for ages 65-74: $134,626
• Maximum claw back threshold for ages 75 and above: $137,331

If you made more than the minimum amount, you will be required to pay back a portion or all of your OAS depending on the income range.

Registered Retirement Savings Plan (RRSP) dollar limit increase

The RRSP annual dollar limit for the 2022 tax year is $29,210.  However, keep in mind that your individual contribution limit is capped at 18% of your earned income in the previous year.

Tax-Free Savings Account (TFSA) contribution limit increase

The 2023 TFSA contribution limit increased from $6,000 to $6,500.  If you’ve had an account since 2009, were 18 years of age, and a resident of Canada throughout that period, the cumulative total you can have in your TFSA is now $81,500 (not including investment growth).

Taxable Covid-19 Support

If you received taxable Covid-19 benefits in 2022 such as the Canada Recovery Benefit (CRB), the Canada Recovery Sickness Benefit (CRSB), the Canada Recovery Caregiving Benefit (CRCB), and the Canada Worker Lockdown Benefit (CWLB), you will receive a T4A slip with the required information for your tax return.

If you received the CRB and your net income after certain adjustments is more than $38,000, you may be required to pay back part or all of the benefits received in 2022.

Covid-19 benefit repayment

If you repaid an amount in 2022 related to Covid-19 benefits previously received, you will receive a T4A slip with the amount repaid. You can choose to claim a deduction for the repaid amount in the year the benefit was received or in the year the benefit was repaid. You may also split the deduction between these years provided you don’t deduct more than the amount repaid.  If you wish to deduct the repayment in a prior year, a completed form T1B should be attached to your 2022 tax return and the CRA will then automatically reassess your prior year return.

First-Time Home Buyer’s tax credit doubled

The amount used to calculate the First-Time Home Buyer’s tax credit increased from $5,000 to $10,000 for a qualifying home purchased after Dec. 31, 2021.  This non-refundable tax credit results in tax savings of $1,500.

Home Accessibility tax credit increase

The annual expense limit of the Home Accessibility tax credit increased from $10,000 to $20,000.  If you’re 65 or older or are eligible for the disability tax credit, you can claim up to $20,000 for qualifying renovations to make a dwelling more accessible and safer.

Home Office Expense deduction

Similar to 2020 and 2021, if you worked more than 50% of the time from home for a period of a least 4 consecutive weeks in 2022 due to Covid-19, you may be eligible to claim the work-from-home deduction.  There are two methods available:

• Temporary flat rate method – claim $2 per day for the time worked from home up to a maximum of $500 with no need to track expenses or obtain forms from your employer
• Detailed method – claim the employment portion of actual home office expenses paid which requires itemizing expenses and obtaining a signed form T2200S or T2200 from your employer

Labour Mobility deduction

This new deduction allows eligible tradespeople and apprentices working in the construction industry to claim certain lodging and relocation expenses related to working at a temporary location.  Lodging must be at least 150 kms closer than the ordinary residence to the temporary work location which must be in Canada.  Eligible individuals may be able to deduct up to $4,000 in eligible expenses per year.

The Children’s Sports and Arts tax credit (Nova Scotia)

This is a new $500 Nova Scotia provincial tax credit to help cover the cost of registering children under the age of 19 in sports and arts.

Air Quality Improvement tax credit

If you were self-employed or a member of a partnership in 2022, you may be eligible to claim this temporary tax credit.   It provides a refundable credit of 25% of qualifying expenditures made between Sept. 1, 2021 and Dec. 31, 2022.  Qualifying expenses 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.  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. (In this case, the taxation year in which the credit is claimed.)

Immediate expensing of capital property for self-employed individuals

Eligible individuals and partnerships that acquired a capital property in 2022 may be able to claim a 100% deduction of the expenditure this year.  You may take a full deduction of up to $1.5 million of capital property acquired on or after Jan. 1, 2022.  The property must be available for use before 2025 and certain capital cost allowance classes are not eligible for the enhanced deduction.

Changes coming into effect in 2023

Tax-Free First Home Savings Account (FHSA)

In Budget 2022, the government proposed a new Tax-Free First Home Savings Account to give prospective first-time home buyers the ability to save $40,000 tax-free.  Like an RRSP, contributions would be tax-deductible and withdrawals to purchase a first home (including investment income) would be non-taxable, like a TFSA. The proposed starting date of the FHSA is April 2023.

To open an FHSA, you must be a Canadian resident and at least 18 years of age.  You must be a first-time home buyer, meaning you have not owned a home that you lived in as a principal residence during the current year or previous 4 years.

The following are some of the main FHSA features:

• Lifetime limit of $40,000
• Annual contribution limit of $8,000
• Unused annual contribution limits can be carried forward
• Withdrawals to purchase a qualifying first home would be tax-free
• Withdrawals for other purposes (non-qualifying withdrawals) would be taxable and included in income
• Funds may be transferred from an FHSA to an RRSP or a RRIF with the tax being deferred until withdrawn
• FHSAs not used to purchase a qualifying home must be closed within 15 years or when the account holder turns 71 years old (whichever comes first)

Multi-generational Home Renovation tax credit

The government is offering this new tax credit effective Jan. 1, 2023 to help make it easier for Canadians to care for adult relatives in their own homes.

The following are some of the main features of the Multi-generational Home Renovation tax credit:

• The credit provides a 15% tax refund on qualifying expenses up to $50,000 resulting in up to $7,500 of tax savings
• Expenses must be related to building a secondary suite for a related adult over the age of 65 or a related individual 18 years of age or older who is eligible for the Disability Tax Credit
• The secondary suite must be a self-contained housing unit that includes a separate entrance, bathroom, kitchen and sleeping area
• Relevant building permits for establishing a secondary unit must be obtained to be eligible
• The renovated home must be inhabited or reasonably expected to be inhabited within 12 months after the end of the renovations