Whether you’re a seasoned business professional or new to choosing employee benefits, changes to the tax code impact you, your employees, and your business.
The Canadian government has introduced several new tax credits for 2022 in Canada, including the goods and services tax credit, the children’s fitness tax credit, and more. Knowing what these tax credits are and if you qualify could reduce your tax burden when you file your 2022 personal income tax return by May 1, 2023.
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What Are Tax Credits?
Tax credits allow qualifying taxpayers to subtract a percentage of eligible expenses from the total tax burden they owe to the Canadian government. In some cases, credits work as recognition for taxes already paid or function as a discount in advance or paying in certain circumstances.
The Difference Between Tax Deductions and Tax Credits
Tax deductions reduce the amount of income on which the government may tax you. In contrast, credits reduce your overall tax debt, regardless of income.
For example, if you earned $75,000 and qualified for a $3,000 deduction, your taxable income would reduce to $72,000. If you’re in the 25% tax bracket, this tax deduction would save you $750 in taxes ($3,000 x .25).
If you earned $75,000 and you qualify for a $3,000 credit, the credit would reduce your tax bill by $3,000, regardless of your tax bracket. If you are in the 25% tax bracket, you’d save $3,000 in taxes.
In a sense, tax credits treat all or a portion of the income you have already spent on select products, goods, or services as taxes paid. Tax credits are generally more beneficial and can save Canadians more money when tax season rolls around.
New Tax Credits to Keep in Mind When Filing Your 2022 Taxes
Changes in Canadian tax law can have a significant impact on your business and employees. Stay ahead of relevant or new tax credits for 2022 in Canada. These credits may be changing significantly or could offer those in your workplace significant advantages during the increased inflation of the 2022 tax year.
The Goods and Services Tax Credit
The Goods and Services Tax Credit’s primary goal is to reduce the burden of Canada’s Goods and Services Tax for low-income families. This tax applies to most goods and services available for consumer purchase through any market in Canada. By offsetting this financial burden, the Goods and Services Tax Credit reduces the overall cost of living for Canadian families that need it most.
In 2023, the Canadian government will double the Goods and Services Tax Credit, reducing the tax burden for some of Canada’s hardest-hit and lowest-income families to combat inflation.
The CRA considers most Canadian residents of 19 years of age or older eligible for the Goods and Services Tax Credit. Taxable income must fall below a designated threshold, typically around $48,000 to $64,000. Families receive this tax credit in four lump sums throughout the year in January, April, July, and October.
A single adult with no children previously received $233.50 in December and $233.50 in July. In 2023 with the temporarily doubled Goods and Services Tax Credit, this same adult will receive an additional $233.50, for a total of $701 in the 2023 benefit year.
The Children’s Fitness Tax Credit
Canadian families with income not exceeding $142,000 who have followed extracurricular program registration requirements detailed by local authorities may claim a new tax credit: the Children’s Fitness Tax Credit. Eligible children must be between the ages of 6 and 14.
This tax credit offsets the cost of physical activity programs for growing children. The Children’s Fitness Tax Credit can reduce a family’s tax burden by up to $500 per child.
This tax credit proves especially beneficial for some Canadian families most impacted by recent rises in inflation and the consumer price index.
The Public Transit Tax Credit
With the new public transit tax credit, Canadian taxpayers may claim the cost of eligible public transit tickets, including annual, monthly, and weekly passes.
Taxpayers can receive a credit of 15% of the cost of eligible ticket passes, up to $225 per month as an incentive to reduce roadway pollution in Canada through public transit systems.
To claim this credit, taxpayers must save all related receipts and provide proof of transaction.
The Volunteer Firefighter’s Tax Credit
Volunteer firefighters and search and rescue workers qualify for this credit if they work at least 200 hours during an eligible tax year.
If any current or future employees volunteer their time to firefighting, Canada provides a generous tax credit of up to $3,000 per year. To receive this tax credit, eligible firefighters must provide proof of volunteer service and completion of a suitable firefighting training program.
Many other tax credits, such as Canada’s work-from-home tax credit, have remained static for the 2022 tax year. Check with your trusted tax officials to learn which other changes or credits your business and employees should pay attention to most this year.
Adjusted 2023 Tax Brackets
In addition to changes to existing tax credits or itemized deductions, Canadian tax authorities have adjusted the tax brackets in 2022 to account for the rising impact of inflation and the rise in consumer prices and cost of living. These tax brackets take effect for the 2022 filing season.
Tax bracket changes can have considerable impacts on employee tax burdens. In some cases, offsetting an anticipated increase in employee tax responsibility with the availability of employer-assisted insurance or other policies can help mitigate the impact.
How Tax Brackets Are Changing in 2023
Each federal tax bracket in Canada has increased by 2.4%, a number based on inflation students. Basic personal amounts, considered tax-free income, have increased for individuals to $14,398. Speak with your tax preparer to learn which tax brackets apply to you in any given tax year.
How Do Tax Credits Apply to Health Insurance?
From a business standpoint, employers may qualify for select tax credits or deductions based on the employee benefits they provide.
The rules surrounding specific deductions for employer-provided private health insurance in Canada are strict. Speak to your accountant to learn which tax credits or deductions you may qualify for in any given year.
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