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Canadians: Plan Ahead this Tax Season With These New Changes

By January 6, 2022No Comments

From an extended pandemic (thanks, Omicron) to seeing some of the highest inflation in Canada in 18 years, Canadian small business owners are certainly in for a treat this year. But regardless of the madness as we approach year-end, it’s equally as important to not let these events bog us down. As small business owners, year-end is the perfect time to reflect on the past year and plan for the year ahead. Whether it’s business strategy planning or planning for tax season, understanding every aspect of the current economy, tax benefits, and previously offered government relief programs are critical to tax filing and a prosperous year ahead in 2022.

That starts with knowing what’s happened (or changed) over the last 2021 tax year!

Not sure where to start? Here’s what you need to know about the impact on your income tax return this year.

Plan ahead, as usual to avoid penalties

Just like everything else essential to work and life, planning ahead is key. This too is the case for Canadian small business owners. Be sure to avoid a late tax filing penalty in the new year. Don’t let your taxes sit around past the deadline of April 30, 2022—in fact, get it done early if you can. Note: an immediate penalty of 5% on your tax balance owing plus 1% of your balance owing per month for up to 12 months can be levied by the Canada Revenue Agency (CRA).

In addition, filing late also delays—or worse—strips away any entitlement you have for your government tax benefits (which we’ll detail later in this article).

Go digital—if you haven’t already

According to the CRA, 90 percent of tax benefit returns were filed online for the 2020 tax year. As the entire world moves from paper to digital, it’s clear that filing is easy and secure and the fastest way to get your Notice of Assessment (NOA) and refund! If you haven’t already, seriously consider going digital to make filing more streamlined, receive your refund sooner, and to avoid overall delays. Because truth be told, tax season is an extremely busy time for the CRA and delays are unavoidable!

Just like business accounting and invoicing, a guiding principle for approaching tax season is to: make it as easy as possible for others to pay you back.

Going digital shouldn’t start just at tax filing. Throughout the year, you’re given 365 days to keep your books in good order. Come tax season, all business income and expenses (categorized, sorted and filtered to the expense category they need to be in) are ready to go for tax filing. In a perfect world, that’s exactly how it would play out.

And it is possible! With accounting and bookkeeping software, it doesn’t matter how busy your day-to-day is. TrulySmall Accounting’s double entry accounting software automates your accounting workflow so that come tax season, your books are accurate and up-to-date.

Indexation plays a big part in change this year

This October, Canadians witnessed the largest surge in inflation in 18 years—surging 4.7 percent due to sky-high energy and house prices. In light of this, it’s important to be aware of indexation. The CRA increased its indexation rate to 2.4 percent for 2022.

Why does this matter?

This indexation will have big changes to your tax bill in the 2022 tax year!

These changes include benefits to your minimum taxable amount, basic personal amount, and age amount tax credits.

Change #1: Minimum taxable amount

In addition to the BPA tax credit, the CRA has increased the minimum taxable amount by $1,177 to $50,197. If your taxable amount is below this threshold, a 15% federal tax rate will apply.

Change #2: Basic personal amount (BPA) tax credit

This year, the CRA increased BPA by $590 to $14,398 for 2022, on which the minimum federal tax rate of 15% won’t apply. Everyone—not just business owners—can now save $2,160 (15% of $14,398) in the federal tax bill, provided your 2022 taxable income is less than $155,625.

Change #3: Age amount tax credit

Did you know that if you are a Canadian above 65 years of age, the CRA offers you an age amount tax credit? For 2022, the CRA has increased the age amount by $185 to $7,898, which will reduce your federal tax bill by $1,185 (15% of $7,898).

All of these tax credits are created to help Canadians battle against indexation. While you’re filing your taxes this year, consider all these aspects (like age, total income, etc.) to see if you are eligible this year. If you are, that’s just more dollars back into your pocket!

Conclusion

Tax season may seem like it’s far away, but in reality, it’s fast approaching. And of course, it goes without saying to take advantage of your eligible Tax Free Savings (TSA) amount, as your investment income is exempt from taxes in a TFSA.

Just like all of your other business activities, it’s important to block off ample time in your calendars to make room for tax season prep, new year business planning, and most importantly, getting all documentation ready for tax filing. By doing all the leg work now, you will most definitely do it right, and not miss your tax filing deadline.