Tax Tips and Planning
The rules are always changing. Here are some tax tips that will help save you money.
2021 Tax Information and Reminders
2021 TFSA limit is $6,000
The Tax-Free Savings Account (TFSA) limit was $6,000 for 2020 and 2019, $5,500 for 2018, 2017 and 2016, $10,000 for 2015, $5,500 for 2014 and 2013. For 2009 to 2012, the limit was $5,000. The total room available in 2021 for someone who has never contributed and has been eligible for the TFSA since its introduction in 2009 is $75,500.
Contributions can be made by Canadian residents aged 18 or over. Any unused contribution room can be carried forward. There is no lifetime limit to the amount of the contributions. If a person has contribution room, but no funds to contribute, he or she may contribute funds given to them by their spouse or common-law partner, with no attribution of income to the spouse or common-law partner. Note that a withdrawal in any year does not increase the TFSA room until the following calendar year. If you are thinking of making a withdrawal close to year end, make sure it is done by December 31 so you can have the withdrawal amount added back to the TFSA room sooner.
2021 RRSP Limit
The RRSP contribution limit is $27,830 in 2021 ($27,230 in 2020). The limit will increase to $29,210 in 2022. If you or your employer do not contribute to a pension plan, your 2021 “earned income” for RRSP purposes must be at least $162,278 to create RRSP contribution room of $29,210 in 2022. Please see the news release.
2021 Employment Insurance Rates
Employment Insurance (EI) rates for 2021 have remained at 1.58% of earnings for employees. The maximum annual premium increased to $889.54 (from $856.36 in 2020). The rate for employers is 1.4 times the employee rate or 2.212%. The maximum insurable earnings for 2021 increases to $56,300 from $54,200 in 2020. Please see CRA’s EI premium rates and maximums.
2021 Canada Pension Plan Rates
The maximum pensionable earnings under the Canada Pension Plan (CPP) for 2021 will be $61,600 – up from $58,700 in 2020. Contributors who earn more than $61,600 in 2021 are not required or permitted to make additional contributions to the CPP.
The basic exemption amount for 2021 remains at $3,500. Individuals who earn less than that amount do not need to contribute to the CPP.
The employee and employer contribution rates for 2021 have increased to 5.45% from 5.25% in 2020, and the self-employed contribution rate will increase to 10.9%.
The maximum employer and employee contribution to the plan for 2021 will be $3,166.45 and the maximum self-employed contribution will be $6,332.90. The maximums in 2020 were $2,898.00 and $5,796.00.
Canada Pension Plan Changes for Persons Between Ages 60 and 70
Beginning in 2012, employers must withhold and remit CPP on wages paid to employees between ages 60 and 70, even if the employee is collecting CPP benefits. If the employee is between 65 and 70, he or she may file an election to opt out of paying CPP. These rules also apply to self-employed individuals. In order to avoid paying CPP, the election must be filed with CRA to take effect on the first of the following month. There are several other changes related to CPP benefits. Please contact us for more information.
Employer Health Tax
As outlined in the 2020 Ontario Budget, the EHT exemption has increased from $490,000 to $1,000,000. The next scheduled adjustment to the exemption for inflation has been moved to January 1, 2029. For more information, see the Ontario Ministry of Finance website.
Accelerated Capital Cost Allowance (CCA)
Accelerated CCA is available on additions from November 21, 2018 to December 31, 2027. Prior to the rule change, the “half-year rule” allowed half a year of capital cost allowance in the year of acquisition. Now, for most assets, the usual half year of CCA available in the year of acquisition will be tripled for acquisitions to December 31, 2023. For example, a Class 10 vehicle which is normally subject to a 15% CCA claim in the first year would now be allowed a 45% CCA claim. For acquisitions in calendar years 2024 to 2027, the usual half year of CCA will effectively be doubled rather than tripled. After the acquisition year, CCA will return to the normal rate on the remaining pool in the CCA class.
Tuition and Textbook Credits
For 2021 federal tax purposes, the tuition credit is available; however, the textbook credit is no longer available.
Climate Action Incentive Payment
The climate action incentive (CAI) is a refundable credit which consists of a basic amount and a supplement for residents of small and rural communities. The basic amount is $300 and the spouse or common-law partner amount is $150 and $75 for each qualified dependant. For more information, see CRA’s information on the climate action incentive.
Capital Gains Exemption
The lifetime capital gains exemption for capital gains on qualified small business corporation shares has increased to $892,218 in 2021 from $883,384 in 2020. The lifetime capital gains exemption for capital gains on qualified farm property is $1,000,000 for 2021 and 2020. For more information, see CRA’s indexation adjustment for personal income tax and benefit amounts.
Prescribed Interest Rates
The prescribed rates for the first quarter of 2021 are as follows:
- The interest rate charged on overdue taxes, Canada Pension Plan contributions, and employment insurance premiums will be 5%.
- The interest rate to be paid on corporate taxpayer overpayments will be 1%.
- The interest rate to be paid on non-corporate taxpayer overpayments will be 3%.
- The interest rate used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans will be 1%.
- The interest rate for corporate taxpayers’ pertinent loans or indebtedness will be 4.10%.
For more information, see CRA’s website on prescribed interest rates.
What are the Automobile Limits?
|Limit on cost of vehicle for capital cost allowance purposes||$30,000.00*||$30,000.00*|
|Limit on deductible monthly lease expense||$800.00*||$800.00*|
|Maximum allowable monthly interest deductions in respect of amounts borrowed to purchase an automobile -based on year of purchase||$300.00||$300.00|
|Deduction limit for tax-exempt allowances paid by employers to employees
-on first 5,000 km
-for each additional km
|Benefit from employer-paid automobile operating expenses based on personal kilometers driven
-rate for employees of automobile dealers
Portion of above in respect of GST/HST which must be remitted by employer who is a GST/HST registrant in Ontario
* plus GST/HST
See the Department of Finance News Release.
Temporary Adjustments to the 2020 and 2021 Automobile Standby Charge
Due to the COVID-19 pandemic there has been reduced business activity, business lockdowns, and changes to the daily lives of most Canadians. In recognition of the pandemic’s effect on daily life, CRA has recognized that individuals would potentially have an increased taxable benefit in the form of the automobile standby charge due to the decrease in business mileage in the year despite similar or less personal usage of the automobile. As a result, it is proposed that 2019 automobile usage is used to determine the reduced standby charge in 2020 and 2021. Employees who changed employers after 2019 are not eligible for this relief. For more information, please see the CRA backgrounder published December 21, 2020.
Year End Tax Planning
- Consider paying reasonable salaries to family members before year end. Reasonable salaries can be deducted by you and taxable to them at possibly lower rates.
- Businesses should purchase capital assets before year end. Assets purchased and in use before the business year end are eligible for one half of the usual capital cost allowance rate.
- Owner-managers should consider their salary/dividend mix from their corporation. If you have drawn funds from your corporation throughout the year, you should determine whether these amounts should be characterized as salary or dividends before the year end. Ritchie Shortt & Tully LLP can help you with this decision.
- Consider gifting funds or making interest-free loans to your spouse or an adult child to contribute to the Tax Free Savings Account.
- Consider selling investments with accrued losses before the end of the year to offset any gains you have had during the year. Capital losses in excess of gains can be carried back three years and forward indefinitely.
- Contribute to your RRSP by March 1, 2021 to make the contribution deductible for 2020. Also remember to make your required Home Buyer’s repayment by March 1, 2021.
- Charitable donations, medical expenses, political donations, child care expenses, investment counsel fees and professional dues should be paid by December 31 to be creditable or deductible in the previous calendar year.
- Contribute to Registered Education Savings Plans for your children by December 31. Rather than an annual RESP contribution limit there is now a lifetime contribution limit of $50,000. When you contribute money to any RESP, the federal government will deposit an additional amount – the Canada Education Savings Grant (CESG) – equal to 20% of your contribution up to certain limits. The maximum CESG each year is $500 (20% x $2,500 contribution). The lifetime CESG limit is $7,200.
- Direct Deposit – Canada Revenue Agency is switching to direct deposit for all payments that it issues. We urge you to set up direct deposit at this time. This can be done online through “My Account” (if you are registered), by phone (call 1-800-959-8281), by completing and mailing the Direct Deposit Enrolment Form, or by providing us with a void cheque (we will submit this information to CRA when we electronically file your return).
CRA now has a GST Registry on their website. The GST/HST Registry lets you validate the GST/HST number of a business, which helps to ensure that claims submitted for input tax credits only include GST/HST charged by suppliers who are registered for GST/HST. To get information to validate the GST/HST number of a business, you have to enter in the space provided the business name, the GST/HST number, and the date of the transaction in question. Access the registry.