2022 tax season primer: Our roundup of the best tax tips for Canadians

Get your T4, T4A and T4E forms together

As part of your tax filing prep, you’ll need to get your T4, T4A and/or T4E forms in order. These government documents will help to determine your income. On your T4A, you can also see how much you’ve saved for retirement throughout the year via your registered pension plan, if you opted to contribute.

“The T4, or Statement of Remuneration Paid, is a tax slip that employers issue to employees after each calendar year. It includes your earnings, deductions and tax paid so far. The T4A is another tax slip, issued by payers of other amounts related to employment (pension payments, annuities, self-employed commissions, retiring allowances, scholarships, bursaries, research grants, etc.).”

Learn more about these documents: What are T4, T4A, and T4E forms?

Interest payments: When to claim a tax deduction for your investments 

Can you claim a deduction for the interest paid on money you’ve borrowed for investment purposes? You can for a mortgage on a rental property or a loan to purchase investments in non-registered accounts. Know, though, that there are restrictions:

“According to the Canada Revenue Agency (CRA), ‘most interest you pay on money you borrow for investment purposes [can be deducted] but generally only if you use it to try to earn investment income. … If the only earnings your investment can produce are capital gains, you cannot claim the interest you paid.’ … An example of when interest may not be tax deductible is when you buy land that does not produce rental income and can only produce capital gains. Buying a stock that has no history of paying dividends (or the class of shares does not allow dividends) is another potential example.”

More on claiming a deduction on interest payments: Are interest payments tax deductible?

Claims for COVID-related work expenses 

Did you work from home at least some of the time this year? You can still claim a deduction for home office expenses.

“In 2020, eligible employees who worked remotely could deduct up to $400 in home expenses from their taxable income, without the need to keep receipts or get a signed T2200 form from their employer. The government has promised to extend the simplified deduction through the 2022 tax year, and to increase the allowable amount to $500.”

Find out more about this deduction and other recent tax proposals: What you need to know about your 2021 income taxes

Self-employed? How much are you setting aside?

If you’re self-employed, no one is deducting taxes from your income—it’s your responsibility to allocate funds to cover your tax bill.  

“As a general rule, you should always set aside 25% of your income for taxes. You’re taxed only on your net income, which is your total income minus all your expenses. Look for line 104 on your tax return where it says ‘employment income not on a T4 slip.’ This is where you report your business income.”

Learn about filing taxes when you work for yourself: How to file taxes when you’re self-employed

The tax deductions available for small business owners 

There are several business expenses that may be eligible for tax deductions, if you’re a business owner. It helps to have a solid tracking system for your operating costs. 

“A sole proprietorship or your share of a partnership is reported on your personal tax return—generally on form T2125 Statement of Business or Professional Activities. The statement itself gives a good sense of the types of expenses that are eligible for business expenses, but CRA also provides a good summary.”

For more details on tracking expenses: The basics of starting your own business

Investing as a tax-savings strategy

Should you put your money in a tax-free savings account (TFSA) or registered retirement savings plan (RRSP)? Here’s what to consider.

“With a TFSA, you pay tax on money you’ve earned before you make a contribution; and with an RRSP you get a tax refund now on money you contribute, but will have to pay tax later, on money you withdraw from the plan. This difference, along with your income, your investment timeline, and other factors will all contribute to making the right decision for your investment dollars. You may find that you can use both vehicles simultaneously.”

More on the differences between these registered accounts here: TFSA vs RRSP: How to decide between the two

Recently divorced? Dividing investments and capital gains

The end of a marriage can be costly for both parties involved. But at least they can avoid paying extra taxes when they divide their investments.

“Normally, when assets are transferred between spouses, a capital gain resulting from a subsequent sale would be attributed back to the original spouse on sale. This is called spousal attribution. Attribution does not apply if the asset was transferred as a result of a separation or divorce, whether you are common-law or legally married.”

More on breaking up and breaking up investments: Separation and divorce: How do we split up our investments?

Plan ahead for tax changes if you expect to retire abroad 

If you’re going to spend your retirement somewhere other than Canada, know that there are tax implications. 

“If you sell or rent out your home in Canada … you will likely become a non-resident of Canada. There may be tax implications for assets you own when you leave. Assets like non-registered investments will be subject to a deemed disposition (sale) and this may trigger capital gains tax. Other assets, like pensions and investments, will be subject to withholding tax after you leave.” 

Learn more about paying tax if you move to another country: Where do we pay income tax if we retire abroad?

Stop contributing to CPP if you’re retired and still working

If you’re retired and are contributing to the Canada Pension Plan (CPP), you may be able to opt out.

“You can start CPP as early as age 60; if you’re still working at that point, you need to keep contributing to CPP. If you’re 65 or older, and plan to continue working, you can choose not to contribute to CPP by completing Form CPT30 Election to Stop Contributing to the Canada Pension Plan, or Revocation of a Prior Election.” 

For more on collecting CPP while working: Can Canadian seniors collect government benefits while still working?

Child support payments cannot be claimed

Parents who pay child support cannot claim a tax deduction for these payments. However, the person receiving support receives that amount tax-free. 

“Child support payments cannot be deducted on the tax return of the person paying them. This is the case for all agreements or court orders negotiated after May 1997. The good news for the recipient, however, is that child support is not taxable (in other words, the parent who receives child support does not have to pay tax on that money). Further, any support payments stipulated in an agreement or court order are deemed to be child support if they are not specifically identified as spousal support.”  

More tips for those newly divorced or separated with kids: Tax basics for newly separated parents

Prep your U.S. investments, too 

Whether it’s stocks, real estate or other assets, the markets south of the border have always been a draw for Canadian investors. But there are tax implications when investing in U.S. assets. 

“A Canadian is generally subject to 15% withholding tax on the gross proceeds of U.S. real estate, unless they file for a withholding certificate prior to closing to reduce the tax based on the estimated capital gain. U.S. capital gains tax paid is eligible to claim in Canada as a foreign tax credit. If a Canadian taxpayer has more than $100,000 in foreign assets, including U.S. stocks, ETFs, rental real estate, or other investments, they need to file the T1135 Foreign Income Verification Statement form with their Canadian tax return. The $100,000 limit relates to the cost, in Canadian dollars, for the investments.”

Learn more about investing in the U.S. as a Canadian citizen: Tax planning for Canadians who invest in the U.S.

Adjust your income tax: A refund feels good, but this is better

Learning that you’re getting a refund when filing your income tax return is certainly a good feeling, but wouldn’t you rather hold on to that cash from the start, instead of giving an interest-free loan to the taxman? 

“Look at how much income tax is being withheld from your paycheques. If it’s more than necessary, you can arrange for your employer to deduct less.”

Find out other ways to keep more money in your pocket: 8 year-long tax strategies to build wealth faster

Do not lie on your tax return

This should go without saying: Do not lie about your earnings, even investing income. If you log into your CRA account before doing your taxes, you will notice that it already includes details about your investment and/or employment income. 

“To spot undeclared, taxable interest, dividend and capital gains income, the CRA has access to info from all Canadian financial institutions. They can also determine if you’ve exceeded your TFSA and RRSP contributions and penalize you accordingly.”

Other ways the CRA can catch tax lies: 7 ways the tax man is watching you

Have an income property? Know exactly what you can claim 

You’ll want to track expenses you can claim on your tax return. However, you may only be able to claim a portion of the expenses if you or a family member lives on the property. 

“Expenses such as interest costs, utilities, property tax, repairs and renovations can be deducted, according to the Canada Revenue Agency (CRA). Some expenses, called current expenses, are only deductible in the year you incur them. And others, known as capital expenses, are deductible in future years.”

Things to consider: What expenses can you deduct for a second property in Canada?

You can reduce your capital gains amount 

A capital gain is the difference between the purchase price and the selling price of any asset (including homes and real estate). While you can’t avoid the tax altogether, there are ways to avoid paying more than necessary. 

“Capital gains are taxed as part of your income on your personal tax return. Use the federal tax brackets for 2022, which can give you an idea of how much tax you may owe for the year. You will need to figure out the provincial tax bracket rate for your province or territory, too. Since Canada has a tiered tax system, you will have to do a bit of math to estimate your annual income tax, breaking down your total tax into the brackets, and the amount owed for each bracket.”

For more on capital gains: How it works: Capital gains tax on the sale of a property

Check if your home renovations are tax deductible

If you made any improvements to your home or rental property in 2022, find out about the rebates and tax credits available for real estate improvements. 

“There is currently a Canada Greener Homes Initiative that provides both grants and loans for home evaluations and retrofits. Your renovation may qualify for a Canada Greener Homes rebate subject to the eligibility criteria, and there are plenty of other ways to save tax on home renovations for other taxpayers too.”

Here’s what you can claim: Are home renovations tax deductible in Canada?

Keep a file of your tax return documents

Tax audits are often done at random, so you’ll want to have your documents ready should the CRA come calling. That means holding on to six years of tax return documents (or longer if you own business property).

“The more organized you can be with receipts and other documentation relating to your return, the better off you’ll be if you are selected for an audit. Be prepared to produce them quickly when CRA asks to see them, and keep in mind that members of your family may be asked to offer up their own documentation as well.”

More tips for dealing with an audit: 6 ways to make your tax return audit-proof

Read more on taxes:

• “My financial advisor overcontributed to my TFSA—now what?”
• What to do when you overcontribute to your RRSP
• Can I put mutual fund fees back in my account? 
• When your investment partners don’t play by the CRA’s rules
• What to do if you haven’t filed an income tax return