Each year, most (but not all) income tax and benefit amounts are indexed to inflation. The Canada Revenue Agency in November 2021 announced the inflation rate used to index the 2022 tax brackets and amounts would be 2.4 percent. This rate was calculated by taking the percentage change in the average monthly consumer price index data as reported by Statistics Canada for the 12-month period ended Sept. 30, 2021, relative to the average CPI for the 12-month period ended on Sept. 30, 2020.
Increases to the tax bracket thresholds and various amounts relating to non-refundable credits took effect on Jan. 1, 2022. Increases in amounts for certain benefits, such as the GST/HST credit and Canada Child Benefit, however, only take effect on July 1, 2022. This coincides with the beginning of the program year for these benefit payments, which are income tested and based on your prior year’s net income, to be reported on your 2021 tax return due this spring.
Tax brackets for 2022
All five federal income tax brackets for 2022 have been indexed to inflation using the 2.4-per-cent rate. The 2022 federal brackets are: zero to $50,197 of income (15 per cent); more than $50,197 to $100,392 (20.5 per cent); above $100,392 to $155,625 (26 per cent); over $155,625 to $221,708 (29 per cent); and anything above that is taxed at 33 per cent. Each province also has its own set of provincial tax brackets, most of which have also been indexed to inflation, but using their respective provincial indexation factors.
Basic personal amount (BPA)
This is the amount of income an individual can earn without paying any federal tax. You may recall the government in December 2019 announced an increase of the BPA annually until it reaches $15,000 in 2023, after which it will be indexed to inflation.
For 2022, the increased BPA has been set by legislation at $14,398, meaning an individual can earn up to this amount in 2022 before paying any federal income tax. The value of this federal credit for taxpayers earning more than this amount is calculated by applying the lowest federal personal income tax rate (15 percent) to the BPA, making it worth $2,160. (Because the credit is “non-refundable,” it’s only worth the maximum amount if you otherwise would have paid that much tax in the year.)
But higher-income earners may not get the full, increased BPA since there is an income test. The enhanced BPA is gradually reduced on a straight-line basis for taxpayers with net incomes of more than $155,625 (the bottom of the fourth tax bracket for 2022) until it has been fully phased out once a taxpayer’s income is over $221,708 (the threshold for the top tax bracket in 2022). Taxpayers in the top bracket will still get the “old” BPA, indexed to inflation, which is $12,719 for 2022.
Government pension contributions
The Canada Pension Plan (CPP) rate for 2022 is 5.7 percent (the Québec Pension Plan (QPP) rate is 6.15 percent) with maximum contributions by employees and employers set at $3,499.80 ($3,766.10 for QPP) in 2022, based on the new yearly maximum pensionable earnings of $64,900 (with a $3,500 basic exemption.) Self-employed Canadians must contribute twice the amount, so their maximum CPP contribution for 2022 will be $6,999.60 ($7,552.20 for QPP), up from the 2021 amount of $6,332.90 ($6,855.80 for QPP).
The CPP hike is part of a multi-year plan approved by the provinces and the federal government five years ago to increase contributions and benefits over time.
Employment insurance premiums are also rising, with a contribution rate for employees of 1.58 percent (1.2 percent in Quebec) up to a maximum contribution of $952.74 ($723.60 in Quebec) on 2022 maximum insurable earnings of $60,300.
The 2022 tax-free savings account (TFSA) contribution limit will remain at $6,000 for the fourth year in a row. That’s because the government in 2015 announced that, starting in 2016, the annual TFSA limit would be fixed at $5,000, indexed to inflation for each year after 2009, but rounded to the nearest $500. In other words, once the cumulative indexed annual TFSA contribution limit hits $6,250, it will jump to $6,500.
For 2022, that indexed contribution amount is $6,162.70, based on the 2.4-per-cent inflation factor above. But the limit for 2023 is expected to increase to $6,500, provided the 2023 indexation adjustment is at least 1.5 percent.
The cumulative TFSA limit is now $81,500 for someone who has never contributed to a TFSA and has been a resident of Canada and at least 18 years of age since 2009.
RRSP dollar limit
The registered retirement savings plan (RRSP) dollar limit for 2022 is $29,210, up from $27,830 in 2021. Of course, the amount you can contribute to your RRSP is limited to 18 percent of your 2021 earned income, which includes (self)employment and rental income, less any pension adjustments, up to the current annual dollar limit.
If you receive Old Age Security (OAS), the OAS repayment threshold is set at $81,761 for 2022, meaning your OAS will be reduced in 2022 if your taxable income is more than this amount, and is fully eliminated with taxable income over $133,141.
Working from home
Finally, a reminder that those of us who continue(d) to work from home in 2021 and 2022 will once again be able to take advantage of the temporary flat rate method, introduced for the 2020 tax year, to calculate home office expense deductions.
Under the temporary flat rate method, employees can simply claim $2 for each day they worked from home due to the pandemic. The government in December announced in its economic statement that it was increasing the maximum claim to $500 (from $400) for the 2021 and 2022 tax years.
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