A Quick Way to Prep for Tax Season and Understand Tax Changes in 2022/2023
Do you dread tax season?
As we ring in a new year, many of us are also acutely aware that tax prep season is upon us. But instead of invoking a sense of dread and fear, properly preparing yourself by researching and consulting with a knowledgeable accountant can turn that dread into…less dread.
Tax prep is as much a mental game as it is anything else. The earlier you begin to organize, the better your chance of taking advantage of any last-minute tax-saving strategies.
It's also important to understand tax changes that have come into effect for 2022/2023 - keeping yourself up-to-date (or just letting me fill you in on the details) will allow you to be more proactive regarding taxes.
IMPORTANT DEADLINES
The deadline to file your 2022 tax return is April 30, 2023, but since it falls on a Sunday, the deadline is pushed to May 1st, 2023.
The deadline to contribute to your 2022 RRSP is March 1, 2023 (to claim as a deduction on your 2022 tax return).
TIPS FOR PREPARING FOR TAX FILING
When it comes to gathering tax information, I suggest starting now. This will avoid any last-minute scrambling (or surprises) as we approach the tax filing deadline.
Here are a few tips to get yourself organized:
Collect and sort all of your expense receipts, medical receipts, bills, etc. I'd suggest being proactive and keeping a scanned copy (or paper file) of all receipts
If you are a Sole Proprietor, ensure you have your bank statements for the past 12 months
Also, for Sole Proprietors, having your business expenses sorted by category on a spreadsheet is all I need to pull together your tax information. (*Note - your spreadsheet needs a robust summary of your expenses, including detailed information on business reason, date, amount, etc.)
COMPLETENESS IS KEY
Many of my clients don't understand how imperative it is for them to be as transparent as possible when updating me on major life events. Something as innocuous as your child starting a private school, having a child, or the passing of a family member, can impact your taxes.
Ensuring I have the full picture is key. Keeping me apprised of any major OR minor changes in your life will help maximize any refund you are eligible to receive while minimizing any money owed on your taxes.
TAX CHANGES FOR 2023
As with most things, tax and benefit amounts are affected by inflation. For 2023, some tax-bracket thresholds and amounts relating to non-refundable credits take effect on January 1, 2023.
But increases for some benefits, including the Canada Child Benefit and the GST/HST credit, take effect on July 1, 2023 (as these benefit programs operate on a different schedule).
IMPORTANT TAX RELATED INFORMATION
Repaying COVID-19 Benefits
If you received the CRB and your net income after certain adjustments is more than $38,000, then you may have to repay benefits you received in 2022.
If you had repaid COVID benefits, you can choose which year to claim the tax deduction. You can either claim the deduction in the year you received the benefit, or the year you repaid it.
A reminder too that one-time provincial payments to help you through COVID-19 will not be taxable, and you don’t need to report them as income on your 2022 tax return.
Work At Home Expenses
Similar to last year, you may claim a deduction for work-at-home expenses if you work at home 50% of the time. You may claim deductions based on the Sqft of the home office against the total home expenses OR a simplified method of $2/day multiplied by the number of days you had worked at home, up to a maximum of $500.
For further details visit the link below:
Old Age Security Limit
For the 2022 tax year, those with taxable income of $81,761 and over would need to repay some of your OAS (at $134,626, you would not have received any OAS payments). With CRA’s new Affordability Plan, seniors aged 75 and above had their OAS payments increased by an automatic 10% as of July 2022.
IMPORTANT CREDITS
Air Quality Improvement Tax Credit: Eligible businesses can claim 25% of their qualifying ventilation upgrades to a maximum of $10,000. In other words, a reduction to your taxes of up to $2,500.
Automobile Income Tax Deduction Limits: 2022 continues to see an increase in Capital Cost Allowance (CCA) ceiling limits for zero emission and passenger vehicles. Deductible monthly leasing costs also increased by $100, and the per kilometer rate paid by employers to employees who use their personal vehicle for work has increased by 2 cents per km from last year.
Home Accessibility Tax Credit (HATC): Those 65 and older and are eligible for the Disability Tax Credit, and can claim renovation costs related to accessibility up to $20,000. In other words, up to a $2,500 reduction to your taxes.
Labour Mobility Deduction (LMD): This new deduction allows tradespeople, apprentices, and employees working in construction to claim meals and lodging expenses paid to earn income at a temporary work location.
TAX BRACKET CHANGES
All income tax brackets have been changed due to inflation, using the new 6.3% rate.
The new federal tax brackets are:
$0 to $53,359 (15%)
More than $53,359 to $106,717 (20.5%)
More than $106,717 to $165,430 (26%)
More than $165,430 to $235,675 (29%)
Anything above $235,675 is taxed at 33%
BASIC PERSONAL AMOUNT CHANGES
In 2023, the basic personal amount (which you can earn without being taxed federally) has increased to $15,000. After this, any income you earn will be subject to normal tax thresholds.
It's important to note that this benefit gets reduced if your net income surpasses $165,430 and is fully phased out when your income surpasses $235,675 (taxpayers in this top bracket will have the old basic personal amount applied, which is $13,521).
CONTRIBUTION CHANGES
Here are how Canada Pension Plan contributions have changed for 2023:
Employees' and employers maximum contribution will be $3745.45
The maximum CPP contribution for any Canadian that is self-employed (they contribute twice the amount) is $7508.90
Employment Insurance Premiums have also gone up. Employees will have a max. contribution rate of $1002.45, with employers contributing a max. of $1403.43
RRSP limits are $30,780 (although you're still limited to 18% of your 2022 earned income) and tax-free savings account (TFSA) limits have increased to $6,500.
FIRST HOME SAVINGS ACCOUNT (FHSA)
Due to launch as early as April 1, 2023, first-time homebuyers can save $40,000 to purchase their first home in Canada on a tax-free basis.
Similar to RRSPs, contributions are tax-deductible, but withdrawals for the purchase of a first home will be non-taxable.
HOME FLIPPING TAX
Effective on January 1, 2023, properties sold that are owned less than 12 months (specifically, 365 consecutive days) will be considered to have “flipped”. Any profits from the deal will be taxed as business income. This holds true, even if it is by definition a principal residence, in accordance to the Income Tax Act.
Regular business income is taxed at personal marginal rates and not considered a capital property (whereby 50% of the capital gains are taxable at the marginal rate). In other words, 100% of the appreciated value is taxed.
Exceptions include a certain number of life events including the death of the individual or a related party, an addition to a household, breakdown of a relationship, a threat to personal safety, serious illness or disability, work relocation or termination, insolvency or destruction or expropriation of the home.
ONTARIO CREDITS
The Ontario Staycation Credit: This is a credit to claim 20% of your stay in an Ontario hotel, cottage or campground, during 2022 up to $1,000 individually or $2,000 as a family.
The Ontario Seniors Care at Home Tax Credit: This tax credit is to help seniors with eligible medical expenses and those with attendant care. The credit is equal to 25% of your eligible medical expenses up to $6,000. In other words, a maximum refundable credit of $1,500.
The Seniors’ Home Safety Tax Credit: Like the HATC, this credit allows 25% up to a maximum of $10,000 in eligible expenses. The maximum credit is equal to $2,500 per year.
TAX PREPARATION CHECKLIST
The following list is comprehensive so not all may be applicable to you:
T-Slips (T5, T4, T3, T4(OAS), T4A(CPP), T4E, T4A)
Employment expenses (if eligible, you should be given a form T2200 filled by employer). Common expenses include, telephone, auto costs, insurance, supplies etc.
RRSP Contribution slips
Investment summary of transactions (For capital gains/loss calculation. This can be downloaded from your trading platform like Questrade, TD Waterhouse)
Did you sell a principle residence during the year? If so, please provide the sale documents
Did you sell a property during the year? If so, please provide the sale documents
Interest expenses for investment purposes (Loans incurred to invest into a small business, or incurred for trading)
Business/Commission income and expenses (Auto expenses, auto mileage - personal vs business and travel log to/from, purchases, advertising, supplies, licenses and permits, telephone, utilities, home office, repairs and maintenance, insurance, interests expenses etc.)
Is your personal business a GST registrant? If so, there is also a filing requirement.
Rental Income and expenses (repairs and maintenance, property taxes, utilities, janitorial, common fees, mortgage interest etc.)
Did you move during the year where your new home is 40KM closer to your new place of employment than before. These moving expenses can be claimed
University/tuition tax slips (T2202A)
Property taxes/rental expenses paid for your principal residence
Child care costs/nanny costs paid in the year. If your children attended private school, there is a child care expense portion in the tuition fees. Did your lower income spouse enroll in school during the year?
Child support and/or spousal support payments/received
Summer camps and other camps paid in the year for children
Medical receipts or a print off from your insurance provider of medical expenses paid out of pocket
Donation tax receipts
Private health Insurance premiums paid
Professional/Union dues
Any significant changes to you and your family for 2022 that I should be aware of and may be utilized in filing for your taxes?
Other COVID related issues for 2022 that I should be aware of and may be used for taxes
For more information on how M.Y. Accounting Services can help you or your business, feel free to contact me at marioyu2@gmail.com or 416-566-8806.
