Ring in the season with end-of-year tax tips and changes for 2022
These pointers can help business owners and individuals save money and avoid unwelcome surprises
As 2021 draws to a close, you still have time to take stock of your finances and plan ahead for the upcoming tax-filing season. It’s worth noting available deductions and new rules that might apply to you, as you review your business and personal tax situation.
Here are some basic tips to help ensure you and your family are aware of potential tax-saving opportunities and can avoid unwelcome surprises at tax time.
Important tax changes to consider
These new tax rules are intended to ensure that owners aren’t penalized when passing on the family business to the next generation. Specifically, the changes address the transfer of private company shares to a corporation controlled by adult children or grandchildren.
The government is consulting on further amendments to these new rules, so stay tuned.
As well, the forgivable portion of the Canada Emergency Business Account (CEBA) loan is considered taxable income in the year the loan is received. This isn’t new, though the government’s support programs have changed. The federal government recently announced plans to extend the CRHP until May 7, 2022, and introduced the Hardest Hit Business Recovery Program, the Tourism and Hospitality Recovery Program and other relief programs, which effectively replace the CEWS and the CERS, which expired on Oct. 23, 2021.
The tax would apply to new vehicles and aircraft with a final sale price of more than $100,000, and boats priced at more than $250,000. The tax would be calculated as the lesser of 20 per cent of the total sale price above these thresholds or 10 per cent of the total sale price.
Be aware that even if you’ve purchased a yacht, plane or the car-of-your-dreams before Dec. 31, you may still be subject to the tax if you don’t take possession until the new year.
You may want to consider whether to accelerate or delay capital expenditures, if you would otherwise incur excess expenditures in one year and a shortfall in another. You cannot carry forward any unused portion of the limit into the next year. Draft legislation is still pending for this measure, which will provide further details.
Other considerations for family businesses and owner-managers
Consider whether distributions, such as dividends, from your company to your spouse or other family members are subject to the TOSI rules. If these rules apply, your family members will be taxed at the highest personal income tax rate, even if they wouldn’t otherwise be in the top income tax bracket.
A prescribed rate loan is created when investment capital is lent by a high-income family member to a low-income family member or family trust. If it’s properly implemented, you can arrange for investment income earned over the CRA’s current prescribed rate of 1 per cent to be taxed at a lower-income family member’s tax rate while the loan is outstanding.
Whether you ultimately choose to make a cash donation or a gift of property (known as a “gift in kind”), you’ll still have to make your charitable gifts by Dec. 31, 2021, to claim the tax credit on your 2021 tax return.
Dates to note
Finally, this year’s personal tax filing date is May 2, 2022 (since April 30 falls on a Saturday). The deadline is June 15, 2022 for Canadians who are self-employed or those whose spouse is self-employed. Corporate income tax returns are due six months after year-end.
Overall, working with a tax professional is the most effective way to assess your tax situation and achieve greater savings. It can also help you to prepare for any eventuality and realize your long-term business and financial goals.