income splitting illustrated by piles of coins at the end of diverging paths

How to Use Income Splitting in Canada to Legally Lower Family Tax Burden

If you run a family business in Canada, chances are you’ve heard of income splitting. You may already pay a spouse a salary, issue dividends to an adult child, or look into trusts as a way to reduce your household’s tax bill. But while many business owners are aware of the concept, few explore the more advanced strategies that can lead to meaningful and lasting benefits, especially in a tax environment that has changed considerably over the past few years.

Since the introduction of the Tax on Split Income (TOSI) rules, the Canada Revenue Agency (CRA) has tightened its approach to how income can be shared within a family. Many traditional techniques no longer work as they once did, and the margin for error is narrower. That doesn’t mean the opportunity is gone, it just requires a more thoughtful and structured approach.

In this article, we’ll walk through some of the more creative and compliant income splitting options still available to family businesses in Canada.

Income Splitting in Canada: A Smarter Approach for 2025

Income splitting allows families to distribute business income among members in lower tax brackets, which can significantly reduce the overall tax burden. For family-owned businesses, especially those where more than one person contributes to operations, it presents a legitimate and effective planning opportunity.

However, the introduction of the Tax on Split Income (TOSI) rules has reshaped how this strategy can be used. These rules target income diverted to individuals who don’t actively participate in the business or haven’t invested capital. For example, if only one spouse works in the company but both receive dividends, the CRA may reclassify that income and apply a higher tax rate.

While TOSI narrowed the options, it didn’t eliminate them. Several pathways remain available—particularly for those who involve family members in meaningful roles, document contributions clearly, and structure compensation with purpose. With thoughtful planning, income splitting can still support tax efficiency within the boundaries of today’s rules.

5 CRA-Compliant Income Splitting Strategies for Families

For family businesses looking to reduce tax without running afoul of CRA scrutiny, several options remain viable. Each strategy requires structure, documentation, and a clear link between compensation and actual involvement. The following techniques demonstrate how families can still make the most of income splitting in Canada.

1. Pay Family Members a Salary That Passes the Reasonableness Test

Paying a spouse, child, or other relative for their role in the business is one of the most accessible approaches. But this only works when the amount paid aligns with the nature of the work performed. The CRA expects compensation to be comparable to what you would pay an unrelated employee in a similar role.

That means job descriptions, time logs, and performance records matter. Paying a child for bookkeeping or inventory work can be entirely valid, but only if the effort and hours match the pay. A well-maintained payroll file can be just as powerful as a tax return when it comes to demonstrating legitimacy.

2. Use Prescribed Rate Loans to Transfer Investment Income Legally

A lesser-used yet highly effective option involves loaning money to a lower-income spouse or adult child using the CRA’s prescribed interest rate. Once established, the funds can be invested by the recipient, and any income generated is taxed in their hands not the lender’s.

To qualify, the arrangement must be formal. That includes a written agreement, a fixed interest rate (based on CRA’s quarterly rate), and annual interest payments by January 30 of each year. If these steps are skipped, the income may be attributed back to the lender. When set up correctly, this strategy can shift thousands of dollars in investment income away from higher brackets.

3. Allocate Dividends with a Discretionary Family Trust

A discretionary family trust can allow business owners to allocate dividends among multiple beneficiaries, often children or spouses. This structure can support long-term tax planning while enabling flexibility in how profits are shared.

However, the TOSI rules apply here as well. Allocating dividends through a trust requires more than paperwork; it must be backed by real participation or capital involvement. The age of the beneficiary and their history with the business will also influence whether income qualifies for favourable treatment.

In some cases, trusts can also assist with succession planning. By allocating dividends or capital gains strategically, families can build wealth in the next generation while reducing exposure to higher personal tax rates.

4. Freeze Shares to Maximize the Lifetime Capital Gains Exemption

This strategy involves converting the business owner’s current shares into fixed-value shares and issuing new growth shares to family members or a trust. The goal is to cap the owner’s future tax liability while transferring future growth to others who may be in lower tax brackets.

An estate freeze can help preserve access to the Lifetime Capital Gains Exemption (LCGE), which currently allows up to $1.25 million in gains to be sheltered from tax when qualifying shares are sold. By spreading ownership across multiple family members, the exemption can be multiplied.

This approach also opens the door to broader wealth planning. Coordinating share structures with retirement goals and intergenerational transitions reflects the type of integrated planning we help many of our clients with.

5. Split Pension Income After Age 65 to Reduce Tax

For business owners nearing retirement, pension income splitting often goes unnoticed. If one spouse receives qualifying pension income, up to 50% can be reported by the other. This can lower the couple’s combined tax bill and may also help preserve access to income-tested benefits.

The types of income that qualify vary, but registered pension plans and certain annuities are often eligible. This technique doesn’t require business involvement from both spouses, making it especially useful for owners who plan to scale back while still drawing income.

Common Mistakes That Can Undermine Income Splitting Plans

Effective income splitting depends on both good planning and precise execution. Missteps, even if unintentional, can attract unwanted scrutiny from the CRA. Here are some of the more frequent errors family businesses make.

One common issue is overlooking the reasonableness test. The CRA requires that salaries or dividends paid to family members reflect the actual value of their work or investment. Payments without clear job duties, time records, or other support may be reassessed.

Another mistake involves assuming that all family members automatically qualify for exemptions under the TOSI rules. Past involvement or minor shareholdings do not guarantee favourable tax treatment. Each case must be reviewed based on the individual’s current role, hours, or contribution to the business.

Prescribed rate loans, while effective, can backfire if they’re not properly managed. Without a written agreement and consistent annual interest payments, the income may be taxed in the lender’s hands, not the borrower’s.

Trusts also require care. A structure that worked when it was first established might fall out of compliance if it isn’t reviewed regularly. Changes in legislation or in a beneficiary’s involvement can affect whether distributions are taxed appropriately.

The CRA now uses advanced technology to detect irregular patterns. Tactics that once avoided notice may now prompt questions. Staying proactive helps ensure that income splitting remains a benefit, not a liability.

Why Strategic Planning Matters for Income Splitting Success

Income splitting is not just about reducing tax in the short term. To be effective, it must be built on structure, timing, and purpose. Simply allocating income across family members without a broader plan often leads to missed opportunities—or worse, missteps that increase risk.

When applied with care, income splitting supports more than tax efficiency. It often becomes a key part of larger decisions, such as how and when to transition ownership, how to value the business fairly, and how to pass assets to the next generation in a way that preserves both family harmony and financial health.

This is where a strategic approach makes a difference. Aligning ownership, compensation, and investment with long-term business and personal goals helps avoid friction and supports continuity. For example, reorganizing shares or freezing ownership interests can influence not only tax outcomes but also how value is unlocked over time.

At Avisar, our advisory work often brings together multiple perspectives—corporate structure, estate considerations, and current tax rules. This wholistic approach ensures that income splitting isn’t handled in isolation but integrated into a plan that reflects the bigger picture.

Final Thoughts on Making Income Splitting Work for Your Family

Family businesses in Canada continue to have meaningful ways to reduce tax through income splitting, even with tighter rules in place. The opportunity hasn’t disappeared, it’s evolved. Now, success depends on thoughtful planning, accurate records, and a structure that fits both the business and the people behind it.

If it’s been a few years since you reviewed your approach, now is a good time to make sure it still meets your needs. The right plan should reflect your goals, your family’s involvement, and the latest expectations from the CRA.

If you’re a business owner navigating income splitting and long-term planning, our advisory team would be happy to explore options tailored to your structure. Book a consultation with Avisar today.

Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

Federal Budget 2024: Previously Announced Measures

Federal Budget 2024: Other Measures

Federal Budget 2024: Personal Measures

Setting up a My Business Account with the CRA

A My Business Account gives directors, officers, and partners access to their corporate taxes, GST, and payroll accounts online. Follow these steps to set up a My Business Account with CRA.

Having a My Business Account with the CRA will make your tax life much easier. Whether you’re looking to review outstanding balances or expected refund amounts, check your past returns or add information to your account, My Business Account is the one place where you can do it all.

Once you have set up your My Business Account, you will be able to:

Update any information related to your business (name, address, banking information, etc.)
View and file GST returns, payment transactions and GST instalment schedules
View T slips that were filed and transactions made
View notices of assessment for corporate tax returns filed and any account transactions and balances

What You Need For Setting Up A My Business Account

Setting up a My Business Account with the CRA is a straightforward process, but you will need your CRA business number and your program account identifiers (GST/HST, payroll, corporation income tax, exercise tax and others) to complete the registration process.

In addition, you will have to provide some personal information, including your social insurance number (SIN), postal code, date of birth and information from a previously filed personal income tax return.

Follow these simple steps to register for your CRA My Business Account.

Navigate to the CRA’s sign in services webpage and select “My Business Account” from the list of services.
Scroll down the page to “Option 2 – Using a CRA user ID and password” and select “CRA register.”
Enter your SIN and click next to continue.
Enter your postal code, date of birth, and the requested tax information from a previously filed tax return. Click next to continue.
Confirm that the mailing address CRA has on file for you is correct before selecting next to continue.
Create a CRA user ID consisting of 8 to 16 characters, no more than 7 digits, no spaces, and no special characters except: dot (.), dash (-), underscore (_), and apostrophe (‘).
Create a password consisting of 8 to 64 characters with at least 1 upper-case letter, 1 lower-case letter, and 1 digit. No spaces, accented character or special characters except: dot (.), dash (-), underscore (_), and apostrophe (‘) will be accepted.
Select and provide the answers to five security questions.
Enroll in mandatory multi-factor authentication by selecting your preferred method (telephone or passcode grid).
Enter your business number.
Review and agree to the terms and conditions of use by entering your password and selecting “I agree.”
Registration is now complete until you receive your security code in the mail. Once you do, log in to My Business Account using the CRA user ID and password created in steps 6 & 7 and enter the code when prompted.
Review and agree to the My Business Account terms and conditions of use.
You will now have full access to My Business Account.

Note: Internal accountants and employees (that are not officers) should not use the My Business Account system but are welcome to create a CRA RepID and access the company’s information using the Represent a Client system.

When you work with Avisar CPA, you can authorize us as your representative with the CRA through your My Business Account.

Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

Federal Budget 2023: Other Measures

Small Business Credit Card Fees

Budget 2023 announced that commitments had been obtained from Visa and Mastercard to lower fees for small businesses. More than 90% of credit card-accepting businesses are expected to see their fees reduced by up to 27%.

Automatic Tax Filing for Low-income Canadians

Budget 2023 announced that the number of Canadians eligible for CRA’s automatic File My Return service will be increased to 2 million by 2025, almost tripling the number of currently eligible Canadians. In 2022, 53,000 returns were filed using this service. In addition, a new pilot project will be implemented to assist vulnerable Canadians in applying for benefits even if they do not file tax returns.

Student Benefits

Budget 2023 proposes increasing Canada student grants by 40%, raising the interest-free Canada student loan limit from $210 to $300 per study week, and waiving the requirement for mature students (aged 22 or older) to undergo credit screening in order to qualify.

Dental Care for Canadians

The Canadian dental care plan would provide coverage for all uninsured Canadians with an annual family income of less than $90,000 (the Canada dental benefit only provided benefits for children under 12) by the end of 2023. The plan will be administered by Health Canada with support from a third-party benefits administrator. Benefits are reduced for families with income between $70,000 and $90,000.

Protecting Federally Regulated Gig Workers

Budget 2023 proposes to amend the Canada Labour Code to strengthen prohibitions against employee misclassification for federally regulated gig workers such that they will receive protections and benefits including EI and CPP.

Ensuring the Integrity of Emergency COVID-19 Benefits

Budget 2023 proposes to provide $53.8 million in 2022-23 to Employment and Social Development Canada to support integrity activities relating to overpayments of COVID-19 emergency income supports.

Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

Federal Budget 2023: Personal Measures

Alternative Minimum Tax (AMT) for High-Income Individuals

Individuals will owe AMT if the tax amount calculated under the AMT regime is greater than the tax calculated under the ordinary progressive tax rate regime. Under the current rules, the calculation of AMT allows fewer deductions, exemptions and tax credits than under the ordinary income tax rules and applies a flat 15% tax on income over a standard $40,000 exemption.
Budget 2023 proposes several changes to the AMT calculation. First, the AMT rate is proposed to increase from 15% to 20.5%.

Second, the exemption would increase from $40,000 to the start of the fourth tax bracket (for 2024 this is approximately $173,000). Third, the AMT base would be broadened by further limiting tax preferences (i.e., exemptions, deductions and credits) as follows:

The capital gains inclusion rate would increase from 80% to 100%.
30% of capital gains eligible for the lifetime capital gains exemption would be included.
Deductions of capital loss carry forwards and allowable business investment losses would apply at a 50% rate.
100% of employee stock options benefits would be included.
30% of capital gains on donations of publicly listed securities would be included.
Only 50% of many deductions would be allowed, including the following: employment expenses (other than those incurred to earn commission income); moving expenses; child care expenses; interest and carrying charges incurred to earn income from property; northern residents deduction; and non-capital and limited partnership losses of other years.
Only 50% of non-refundable tax credits historically allowed for AMT purposes would be allowed.

The ability to recover AMT in the seven subsequent years, to the extent that tax computed under the ordinary progressive tax rate regime exceeds AMT, is not proposed to change.

The proposed changes would come into force for the 2024 personal tax year.

Grocery Rebate

Individuals and families with modest incomes receive the Goods and Services Tax Credit (GSTC). The maximum 2022/2023 GSTC is $467 for a single person, and $612 plus $161 per child for a married or common-law couple. Budget 2023 proposes a one-time payment called the Grocery Rebate which will equal half of the annual maximum (twice the quarterly payment received in January, 2023) to be paid as soon as possible after the legislation is passed.

Deduction for Tradespeople’s Tool Expenses

Under the current law, a tradesperson can claim a deduction of up to $500 of eligible new tools acquired in a taxation year as a condition of employment. Budget 2023 proposes to double the maximum employment deduction for tradespeople’s tools from $500 to $1,000, effective for 2023 and subsequent taxation years. As a consequence of this change, extraordinary tool costs that are eligible to be deducted under the apprentice vehicle mechanics’ tools deduction would be those costs that exceed the combined amount of the increased deduction for tradespeople’s tool expenses ($1,000) and the Canada employment credit ($1,368 in 2023) or 5% of the taxpayer’s income earned as an apprentice mechanic, whichever is greater.

Registered Education Savings Plans (RESPs)

Government grants and investment income can be withdrawn from RESPs as an education assistance payment (EAP) when a beneficiary is enrolled in an eligible post-secondary program. These withdrawals are taxable.

Under the current law, beneficiaries that are full-time students cannot withdraw more than $5,000 in EAPs in respect of the first 13 consecutive weeks of enrollment in a 12-month period. For part-time students, the limit is $2,500 per 13-week period. Budget 2023 proposes to increase these limits to $8,000 for full-time students and $4,000 for part-time students.
Budget 2023 also proposes to enable divorced or separated parents to open joint RESPs for one or more of their children or to move an existing joint RESP to another promoter. Under the current law, only spouses or common-law partners can jointly enter into an agreement with an RESP promoter to open an RESP.

These changes would come into force on Budget Day.

Registered Disability Savings Plans (RDSPs)

Where the contractual competence of a person with a disability who is 18 years of age or older is in doubt, the RDSP plan holder must be that person’s guardian or legal representative. A temporary measure allowed the person’s parent, spouse or common-law partner (a “qualifying family member”) to open an RDSP and be the plan holder where the person does not have a legal representative.

Budget 2023 proposes to extend this measure by three years, to December 31, 2026. Budget 2023 also proposes to broaden the definition of qualifying family members to include a brother or sister of the beneficiary who is 18 years of age or older. Qualifying family members who become a plan holder before the end of 2026 could remain the plan holder after 2026.
These proposals would apply as of royal assent of the enacting legislation.

Retirement Compensation Arrangements (RCAs)

An RCA is type of employer-sponsored arrangement that generally allows an employer to provide supplemental pension benefits to employees. A refundable tax is imposed at a rate of 50% on contributions to an RCA trust, as well as on income and gains earned or realized by the trust. The tax is generally refunded as the retirement benefits are paid to the employee. The employer receives a full deduction for contributions made to the RCA.

Employers who do not pre-fund supplemental retirement benefits through contributions to an RCA trust and instead settle retirement benefit obligations as they become due, can obtain a letter of credit (or a surety bond) issued by a financial institution in order to provide security to their employees. To secure or renew the letter of credit, the employer pays an annual fee or premium charged by the issuer. These fees and premiums are subject to the 50% refundable tax.
Budget 2023 proposes that fees or premiums paid for the purposes of securing or renewing a letter of credit (or a surety bond) for an RCA that is supplemental to a registered pension plan will not be subject to the refundable tax. This change would apply to fees or premiums paid on or after Budget Day.

Budget 2023 also proposes to allow employers to request a refund of previously remitted refundable taxes in respect of such fees or premiums paid in prior years. They would be entitled to recover 50% of retirement benefits paid after 2023, to a maximum of the refundable taxes paid in the past.

Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

Federal Budget 2023: Previously Announced Measures

Budget 2023 confirms the government’s intention to proceed with the following previously announced tax and related measures, as modified to take into account consultations and deliberations since their release.

Legislative proposals released on November 3, 2022 with respect to Excessive Interest and Financing Expenses Limitations and Reporting Rules for Digital Platform Operators.
Tax measures announced in the Fall Economic Statement on November 3, 2022, for which legislative proposals have not yet been released, including: automatic advance for the Canada workers benefit; investment tax credit for clean technologies; and extension of the residential property flipping rule to assignment sales.
Legislative proposals released on August 9, 2022, including with respect to the following measures:
borrowing by defined benefit pension plans;
reporting requirements for Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs);
fixing contribution errors in defined contribution pension plans;
the investment tax credit for Carbon Capture, Utilization and Storage;
hedging and short selling by Canadian financial institutions;
substantive Canadian-controlled private corporations;
mandatory disclosure rules;
the electronic filing and certification of tax and information returns;
Canadian forces members and veterans amounts;
other technical amendments to the Income Tax Act and Income Tax Regulations proposed in the August 9th release; and
remaining legislative and regulatory proposals relating to the Goods and Services Tax/Harmonized Sales Tax, excise levies and other taxes and charges announced in the August 9th release.
Legislative proposals released on April 29, 2022 with respect to hybrid mismatch arrangements.
Legislative proposals released on February 4, 2022 with respect to the Goods and Services Tax/Harmonized Sales Tax treatment of cryptoasset mining.
Legislative proposals tabled in a Notice of Ways and Means Motion on December 14, 2021 to introduce the Digital Services Tax Act.
The transfer pricing consultation announced in Budget 2021.
The income tax measure announced on December 20, 2019 to extend the maturation period of amateur athletes trusts maturing in 2019 by one year, from eight years to nine years.
Measures confirmed in Budget 2016 relating to the Goods and Services Tax/Harmonized Sales Tax joint venture election.

Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

Surviving a CRA Audit: What You Should Know

It’s the letter you never want to receive from the Canadian Revenue Agency (CRA). You are subject to a CRA Audit.

The CRA sends thousands of letters every year to notify people that they’re being subjected to an audit. Of all the returns they receive, it’s usually business taxes that they take a fine-tooth comb to. This is unfortunate because business owners and entrepreneurs are often swamped with numbers, and the last thing they have time for is to parse through each one.

If you want the best chance of successfully getting through a CRA audit, we’ll look at how they decide who to investigate, what you can do to prepare, what’s going to happen, and what your accountant should be doing in the meantime.

Risks for a CRA Audit

The biggest risk for being selected for a CRA audit is the size of your business. The majority of the CRA audit program spending is devoted to small and medium-sized businesses. When they run through all of the numbers, here’s what they’re looking for:

Discrepancies: Officials are looking for gaps and glaring margins between the reports. For instance, if your reported income is different than the average reported income in prior years, this could be a red flag for the CRA. Or if your income is far higher than the norm in your industry, this may trigger the next step.
Deductions: Sometimes just claiming home office deductions, which can include utilities, insurance, and property taxes, can be enough to have the CRA send you a letter. Because many people will claim these expenses when they aren’t explicitly used for the business, many of the write-offs don’t qualify. You may also face an audit if you’re making a lot of charitable donations or medical expenses.
Cash: Dealing with a lot of cash in a business opens the path to fraud because it’s notoriously difficult to track. This is doubly true if you’re reporting loss after loss in a cash-heavy business.
Family: There are plenty of business owners out there who will take advantage of their familial connections to make it easier to pay their taxes. So while plenty of people will employ family members without breaking the rules, you may be flagged simply for having a child or spouse on the books.

How the CRA Audit Process Works

The first step is a CRA auditor contacting you (usually by mail or by phone). They’ll give you specifics of the auditing process and then conduct an on-site audit at the place of business. The auditor is generally looking at the following paperwork:

Tax returns, perhaps and organizational chart or property details, depending on the nature of the audit.
Ledgers, invoices, receipts, contracts, bank statements.
Records of other individuals or entities not being audited (e.g., partnerships, corporations, spouses, common-law partners, etc.)

The records looked at will include those for your place of business but also your personal records as well. They’ll also look at any adjustments made by your bookkeeper or accountant to ensure that they were all completed according to tax law.

By the end of a CRA audit, the auditor will either declare your filing to be a correct assessment, which means that your case is complete and your audit will be closed. Or they may conclude that you either owe additional taxes or that you’re entitled to a refund.

What You Can Do to Prepare For A CRA Audit

The best way to prepare is by organizing all your records and ensuring that there’s concrete evidence to justify your numbers and answer any questions. This can include anything from invoicing history to physical receipts. The CRA requirement is to keep your records for at least seven years before shredding them, though CRA will generally audit within three years of your return being filed.

You can also consider gathering proof for regional shifts in supply and demand for your industry. For instance, if you’ve taken several losses over the course of your business, you may be able to point to general trends that have pushed down revenue among all of your competitors. However, these records are not to be shown to the auditor unless specifically asked for. Simply having them at the ready can help give you a sense of confidence as you move into the proceedings.

In addition, when you’re getting ready to speak to the auditor, make sure that you’ve given some thought about what you want to address with them. Generally, less is more and answer what is asked of you. You should be friendly but also thorough when asking about anything from due dates to expectations. It’s common for people to get flustered when they’re talking to an official from the CRA — even when they haven’t done anything to be nervous about. When the auditor is working with you, they should get the sense that you have nothing to hide.

The Role of Your Accountant During A CRA Audit

A CRA audit can be difficult for many reasons, particularly if you’re a busy business owner who doesn’t have a lot of bandwidth to organize, catalog, and verify every last record. When you have a good accountant on your side, they can help you manage the process from beginning to end. Accountants stand between you and the auditor, making it easier to handle the questions and produce the paperwork they need to close the case.

Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

Tax Changes for Filing Your 2022 Tax Return

Like many years, Tax Year 2022 comes with several changes you need to know about when filing your personal and business taxes. Understanding the tax changes for 2023 filing is critical to reducing the risk of overpaying your taxes. The following are some of the most important changes Canadians must know about heading into tax filing season.

Repayment of COVID-19 Benefits

Those who received COVID-19 benefits in 2022 from CRA, such as any of the following, are likely to receive a T4A slip to report these benefits on tax returns:

Canada Recovery Benefit (CRB)
Canada Recovery Caregiving Benefit (CRCB)
Canada Sickness Recovery Benefit (CSRB

Those with a net income after adjustments higher than $38,000 from the CRB will need to repay some or all of the benefits they received. For those who repaid all or some of those benefits in 2022, it is possible to claim the tax deduction in the year you desire (when received or when repaid).

Updated Basic Personal Amount

The Basic Personal Amount (BPA) was adjusted to $14,398 for 2022. As a result, you may see a slight boost in your tax return for the year. In 2023, the BPA will increase to $15,000.

Shifts in Federal Tax Brackets

For the tax year 2022, the federal tax brackets are as follows:

Up to $50,197 income: 15%
From $50,197 to $100,392: 20.5%
From $100,392 to $155,625: 26%
From 155,625 to $221,708: 29%
Above $221,708.01: 33%

Be sure to adjust and plan for any tax changes this year based on your income. The upward adjustment of these tax brackets means that some people may see a shift from a lower tax bracket to a higher one compared to last year’s filing.

Work-From-Home Expenses

As so many people have transitioned to working from home, the government has worked to carry over the work-from-home tax credit first put in place in the previous year. That means Canadians who have expenses from working from home and keep documentation of those costs can now claim up to $500 in those expenses on their income taxes. If you did not calculate this, you can use a $2 per day flat rate for each day you worked at home.

First-Time Home Buyers’ Tax Credit

The First-Time Home Buyers’ Tax Credit is on its way up. The HBTC aims to make it more affordable for Canadians to purchase a home. For the tax year 2022, if you purchased a home, you can now claim $10,000 as a non-refundable income tax credit on your taxes. That is twice as much as it was in the year prior. That could provide up to a $1,500 tax savings for some people.

Change in Old Age Security Income Limits

Another update for the tax season this year is a change in Old Age Security income limits. Seniors who make more than what is allowable may have to pay some of their OAS back to the government. For the 2022 tax year, the new limits are:

$80,761, the minimum income recovery threshold
$134,626, the maximum recovery threshold for those between the ages of 65 and 74
$137,331, the maximum recovery threshold for those over the age of 75

If you made more than the minimum amount, you might need to repay some of your OAS. However, your OAS might be cancelled if you made more than the maximum amount listed here.

TFSA Limited Increases

Tax-free savings account limits have also increased for the tax year 2022 to $6,500.

Air Quality Improvement Tax Credit

Another federal change to note is the Air Quality Improvement Tax credit. Businesses that made suitable ventilation upgrades under this credit can claim 25% up to $10,000 can be made in 2022. That provides up to a $2,500 tax credit.

Labour Mobility Deduction

For those who work as apprentices, tradespeople, or employees in the construction industry, the Labour Mobility Deduction (LMD) will allow for claims for meals and lodging expenses. This applies when those in this field must move to a temporary location to work in the industry.

RRSP Dollar Limit Increase

The Registered Retirement Savings Plan (RRSP) dollar limit for 2022 is $29,210. You cannot, however, go beyond 18% of your earned income from the previous year.

For more tips on retirement planning, we recommend checking out this post.

Consult an Accountant to Ensure You’re Filing Properly

With the changes occurring in income tax returns for 2023, be sure to set up a consultation with your accountant to discuss any that may affect you. That helps ensure you are compliant and take full advantage of all potential deductions. If you’d like to discuss these changes with us, just book a free consultation.

Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.