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2022 year-end tax considerations

December 14, 2022

2022 year-end tax considerations

Synopsis
3 Minute Read

As 2022 draws to a close, MNP’s Tax advisors review the tax deadlines, planning considerations, and legislative changes you need to be aware of. This year’s overview includes five considerations to manage the tax liability of your business, six tips to manage your personal tax liability, and a review of four legislative changes that either became effective this year or will come into effect in 2023.

As we approach the end of the calendar year, this is a good time to take a look at some options available to help manage your income tax liability and prepare for the upcoming tax filing season.

Business

Invest in equipment and other capital assets

Consider accelerating purchases of depreciable assets. Provided the assets are available for use at year-end, certain assets can be eligible for a full immediate tax deduction in the year, up to a limit of $1.5 million in the taxation year for an associated group (including corporations, individuals, and partnerships). Other enhanced tax deductions for manufacturing and processing machinery and equipment, as well as clean energy equipment, are also available.

Salaries or dividends?

Your MNP advisor can help determine the ideal blend of salary or dividend remuneration for yourself and family members. We will look at a range of factors, including cash needs, federal and provincial tax rates, and corporate attributes (to determine which type of dividends can be paid) while managing the Tax on Split Income rules. If opting for salaries, be aware that any accrued amounts — including bonuses — are paid within 179 days of year-end.

Shareholder loans

Do you have an outstanding loan from your corporation? Consider repaying it within a year after the end of the corporation’s tax year in which the debt occurred. Otherwise it may become income to you personally.

Tax payments

Avoid interest changes by ensuring you remit final corporate income tax balances to the Canada Revenue Agency (CRA) and applicable provincial tax authorities within two months following year-end (three months for certain Canadian-Controlled Private Corporations).

Plan ahead

Year-end discussions are not only a great time to take stock of what has happened in the current year, but also to discuss what may be ahead.

  • Contemplating a sale of your business? Taking the appropriate steps to maintain your Qualified Small Business Corporation (QSBC) status will ensure you can utilize the capital gains exemption on a future sale of shares.
  • A reorganization may be ideal to accommodate changing business and/or family dynamics to help safeguard business assets as well as minimize taxes.
  • Excessive passive income can reduce the small business deduction available to the corporation. If your corporation holds passive investments, it is important to assess whether the passive income generated in the current year will impact your ability to claim the small business deduction next year.

Personal

Important Payment Dates

While many are aware of the payments that must be made by December 31 in order to qualify for 2022 tax deductions or credits (e.g., charitable donations, political contributions), consider the following deadlines which can also impact your 2022 tax year:

December 15, 2022 — Final 2022 instalment due date.

January 30, 2023 — Payment of any interest on loans from your employer (to reduce your taxable benefit) and interest owed on loans from family members.

February 14, 2023 — Reimbursement of any personal motor vehicle expenses to your employer to reduce your taxable benefit from an employer-provided vehicle.

March 1, 2023 — Repay RRSPs withdrawn under a Home Buyers’ Plan or Lifelong Learning Plan; make RRSP contributions for yourself or a spouse / common-law partner.

May 1, 2023 — Final personal tax payments for 2022 are due (as April 30 falls on a Sunday).

Self-employment expenses

Ensure expenses are appropriately documented through receipts. For motor vehicle expenses, a logbook should be maintained to support the expenses and taxable benefit calculations.

Employment expenses

Track and retain receipts for annual union, professional, or other dues that were not paid for / reimbursed by your employer. Similar to the 2021 tax year, if you worked from home for more than 50 percent of the time for at least four consecutive weeks in the year, you may be able to claim home office expenses, either based on a flat rate or on actual expenses.

RRSPs

Make contributions to your Registered Retirement Savings Plan (RRSP) to reduce taxable income for the year. Contributions made to a spouse or common-law partner’s RRSP are also deductible. The 2022 contribution limit is 18 percent of your 2021 earned income up to a maximum of $29,210. Check your 2021 Notice of Assessment for your available contribution room for 2022. To be deductible for 2022, contributions must be made on or before March 1, 2023.

RESPs

Contributions to a Registered Education Savings Plan (RESP) will not impact your 2022 income tax liability. However, it will allow you to save for your child’s future education and utilize the Canada Education Savings Grant (up to $500 each year, up to a lifetime maximum of $7,200 per child).

TFSAs

Income earned in a Tax-Free Savings Account (TFSA) will not be subject to income tax in the future. The 2022 limit is $6,000. Check with CRA and your financial institutions to confirm your TFSA contribution room.

Charitable donations

The federal and provincial governments offer donation tax credits, resulting in tax savings of up to 50 percent of the value of the gift. The right donation strategy can help minimize income taxes while meeting your philanthropic goals.

Recent and upcoming changes to consider

Trust Reporting Rules

New proposed rules expand annual reporting requirements for trust relationships. If enacted, these rules will apply for taxation years ending December 31, 2023. Connect with an MNP advisor to determine if you could be impacted by these rules.

Underused Housing Tax

A one percent annual tax will apply to certain underused or vacant residential property owned by non-resident, non-Canadians beginning in the 2022 calendar year. The new tax will impact owners of such property on record on December 31, 2022.

Luxury Tax

Effective September 1, 2022, the federal luxury tax applies on the sale of certain vehicles and aircraft costing more than $100,000 and boats costing more than $250,000.

Excessive Interest and Financing Expenses Limitation

The federal government has introduced proposed legislation that would restrict the deduction for interest and financing expenses of certain taxpayers to a proportion of their earnings before interest, taxes, depreciation and amortization (EBITDA) for income tax purposes. To ensure the new rules are applied as intended, exceptions are provided for “excluded entities” which generally include:

  • Canadian-controlled private corporations that, along with any associated corporations, have taxable capital employed in Canada of less than $50 million;
  • Groups of corporations and trusts whose aggregate net interest expense among their Canadian members is $1 million or less; and
  • Certain standalone Canadian-resident corporations and trusts, and groups consisting exclusively of Canadian-resident corporations and trusts that carry on substantially all of their business in Canada.

If enacted, the rules would apply to tax years beginning on or after October 1, 2023.

Get the most up-to-date tax advice for you and your business

Contact your local MNP advisor for a customized assessment of your tax situation and guidance on which year-end planning strategies are right for you.

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