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Essential Tax Numbers 2020, 2021, & 2022

With a new year comes new tax numbers!  Below is a quick reference of important tax numbers for three years, including 2022.  CRA has utilized a 1% indexing (inflation) for those numbers subject to that condition.

What You Need to Know

Taxable income brackets: 

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RRSP Contribution Limit: 

  • 2020: $27,230
  • 2021: $27,830
  • 2022: $29,210

TFSA Limit

  • 2020: $6,000
  • 2021: $6,000
  • 2022: $6,000

Maximum Pensionable Earnings

  • 2020: $58,700
  • 2021: $61,600
  • 2022: $64,900

OAS Income Recovery Threshold (claw-back begins)

  • 2020: $79,054
  • 2021: $79,845
  • 2022: $81,761

OAS Maximum Recovery Threshold (claw-back recovers all OAS payments)

  • July 2021 to June 2022: $128,149
  • July 2022 to June 2023: $129,757
  • July 2023 to June 2024: $133,141

Lifetime Capital Gains Exemption

  • 2020: $883,384
  • 2021: $892,218
  • 2022: $913,630

Maximum EI Insurable Earnings

  • 2020: $54,200
  • 2021: $56,300
  • 2022: $60,300

Medical Expense Threshold

  • 2020: 3% of net income or $2,397, whichever is less
  • 2021: 3% of net income or $2,421, whichever is less
  • 2022: 3% of net income or $2,479, whichever is less

Basic Personal Amount for individuals whose net income is less than the beginning of the 29% tax bracket

  • 2020: $13,229
  • 2021: $13,808
  • 2022: $14,398

Age Amount and Net income threshold amount

  • 2020: $7,637  $38,508
  • 2021: $7,713  $38,893
  • 2022: $7,898  $39,826

Canada Caregiver amount for children under age 18

  • 2020: $2,273
  • 2021: $2,295
  • 2022: $2,350

Child Disability Benefit and Family Net income phase out

  • 2020: $2,886  $68,798
  • 2021: $2,915  $69,395
  • 2022: $2,985  $71,060

Canada Child Benefit

  • 2020: $6,765 per child under six, $5,708 per child age 6-17
  • 2021: $6,833 per child under six, $5,765 per child age 6-17
  • 2022: #6,997 per child under six, $5,903 per child age 6-17

The Bottom Line

These are the current numbers released as of January 2022, but could change without notice, and be superseded by other stimulus measures.

Source: https://www.canada.ca/en/revenue-agency/services/tax/individuals/frequently-asked-questions-individuals/adjustment-personal-income-tax-benefit-amounts.html

 

Owe More Taxes than You Can Pay? Here Are Your Options.

Tax season is upon us and unfortunately that means paying any taxes that may be outstanding. Taxes should be carefully planned each year to ensure they do not become overwhelming, but what happens if you are faced with an unexpectedly large bill?

The most important thing to do if you have a large tax bill coming your way is to file your taxes on time.  Avoidance does not work with the CRA and it is best to face tax debt head one.  Delaying will only end up with additional penalties. There are a number of strategies available to help you deal with your tax debt.

What You Need to Know

1. Get a Personal Loan: This is the first step the CRA will expect you to take to pay off your debt.  Personal loans, borrowing against the value of your home, or borrowing from an individual are all options here. This will be the path of least resistance for most people. A personal loan will wipe out your debt to the CRA and allow you to create a reasonable payment plan for your situation that gives you flexibility to defer if necessary.

2. Access the Value in Your Home: Your home is often the biggest asset you own. Therefore, there are usually options to borrow against the value of the home. This can be done is a few ways:

  • Home Equity Line of Credit: The first options are looking into lending products such as a Home Equity Line of Credit (HELOC). HELOC’s work by allowing a homeowner to take out of large line of credit on their home.  Many people use these products as a mortgage alternative, but they also work to access the value of your home without selling the property.
  • Refinancing your Home: Refinancing is essentially taking a new mortgage out on your house. If you currently have a mortgage, this may mean replacing that mortgage with a new one that has a higher principal amount. If you are currently living mortgage free, this means picking a mortgage on the house as you normally would if you were buying a new house.
  • Use Your House as Collateral for a Loan: Many loans, especially those of large amounts, require collateral before they are issued. This means the lending institution wants something of value put up against the loan in case the loan is not repaid.
  • Sell Your Property: A last resort but selling a property may be the only way to gain access to its value if you are unable to secure financing.

3. Request for Taxpayer Relief: Individuals with outstanding debts to the CRA may be able to request “Taxpayer Relief”. Taxpayer Relief can reduce your amount owing by offering relief from penalties and interest charges.  Typically, taxpayer relief is only granted under extraordinary circumstances such as job loss, serious illness, and a clear inability to pay. Taxpayers must submit a formal request to the CRA using form RC4288 and submitting complete and accurate documentation of their circumstances.

4. Request a Payment Plan: Taxpayers may request a payment plan from the CRA but only after they have exhausted all other reasonable options to pay their balance i.e. Personal loan, refinancing house etc. Payment plans are typically not available for large amounts that can’t be repaid in a year. When negotiating a payment plan with the CRA it is always best to involve a tax professional who can make the negotiation for you.  CRA negotiators are experienced and their main concern is getting the balance owing as quickly as possible. It isn’t uncommon for taxpayers to enter a payment plan that is unrealistic for their financial situation.  CRA’s priority will always be the debt owed to them.

5. Declare Bankruptcy: Declaring bankruptcy has devastating short- and long-term financial effects and should only be utilized as an absolute last resort. Assets could be ceased and you will be unable to obtain credit for many years.  All options should be exhausted before resorting to bankruptcy. Hiring a debt counselor to help you decide if bankruptcy is indeed your only option would be prudent.

The Bottom Line

Tax debt can be overwhelming but realize there are options available to you.  It is always recommended that a professional tax consultant be hired if debt becomes unmanageable. They can help you consolidate debt, make payment plans, and negotiate with the CRA on your behalf.

5 Ways to Avoid Capital Gains Tax

Capital Gains tax occurs when you sell capital property for more than you paid for it. In Canada, you are only taxed on 50% of your capital gain. For example, if you bought an investment for $25,000 and sold it for $75,000 you would have a capital gain of $50,000.  You would then be taxed on 50% of the gain. In this instance, you would pay tax on $25,000.  In Canada, there are some legitimate ways to avoid paying this tax: Tax shelters, Lifetime Capital Gains Exemption, Capital Losses, Deferring, and Charitable Giving. *

What You Need to Know

1.   Tax Shelters

RRSPs and TFSAs are investment vehicles that are available to Canadians that allow investments to be bought and sold with no immediate tax implications:

  • RRSPs – Registered Retirement Savings Plans are popular tax sheltering accounts.  Investments in these accounts grow tax free and you are not subject to capital gains on profits.  When you withdraw your funds, you will be taxed at your marginal tax rate.
  • TFSAs – Tax Free Savings Accounts are like RRSPs in that they allow investments to grow tax free and you are not subject to capital gains tax on the profits you make. The key difference between TFSAs and RRSPs is that TFSAs hold after tax dollars. This means you can withdraw from the account without incurring tax penalties.

2.   Lifetime Capital Gains Exemption

The Lifetime Capital Gains Exemption is available to some small business owners in Canada. It is allowing them to avoid capital gains when they sell shares of their business, a farming property, or fishing property. The CRA determines the exemption amount annually.  The Lifetime Capital Gains Exemption amount is cumulative over your lifetime and can be used until the entire amount has been applied.

3.   Offset Capital Losses

Generally, if you have had an allowable capital loss for the year, you can use it offset any capital gain tax you have owing. This can reduce or eliminate the taxes you will owe. There are a few considerations for employing this strategy:

  • Losses have to a real loss in the eyes of the CRA. Superficial losses will not be allowed to offset gains.
  • You can carry your losses forward or backward to apply them to different tax years. Losses can be carried back 3 years and carried forward indefinitely. This means you can accumulate losses that can be used to offset gains in future years.

4.   Defer Your Earnings

A possible strategy is to defer your earnings on the sale of an asset because you only will owe tax on the earnings that you have received.  For example, if you sell a property for $200,000 you could ask the buyer to stagger their payments over 4 years. Then you would receive $50,000 a year. This would allow you to spread out your capital gain tax.

This strategy is known as the Capital Gain Reserve.  There are a few things you need to keep in mind before using this strategy:

  • The Capital Gains Reserve can be claimed up to 5 years.
  • There is a 20% inclusion rate for each year. This means you must include at least 20% of the proceeds in your income each year for up to 5 years.
  • There are some instances that the 5-year period can be extended to 10 years.

5.   Charity

Consider donating shares of property to charities instead of cash. This method allows you to make a charitable donation, receive a tax credit based on the donation, and avoid tax on any profit. Win-win!

* Avoiding or deferring Capital Gain Taxes should always be done with the guidance of a professional financial advisor and accountant to ensure all CRA guidelines are being carefully followed.

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