Many Canadians are now stressed when it comes to filing their taxes, and it makes sense. 2020 was a chaotic year, and as a result, people don’t know what to expect from 2021 in terms of taxes. COVID-19 extended the 2020 deadline, and people had to file them until June. For 2021, the deadline is April 30th, and on top of that, there were some changes made to taxes that people should be aware of. All of this is making everyone stressed that they might make some mistakes when filing their taxes.
We are here to make sure it doesn’t happen. This article will tell you the Canadian tax changes to consider in 2021 so you keep up to date with them.
1. Employee Stock Options
There were signs even back in 2019 that there will be changes in the taxation of employee stock options. The Liberals indicated this in the 2019 Federal Budget. As such, employees are able to claim a 50% employee stock option benefits deduction.
But there are new rules now, where the employee stock options annual limit changed. The limit is now $200,000 for employees as long as they are part of a business that was established a long time ago and it’s a big one. On top of that, this limitation is decided by considering the stock options’ market value when granting the shares.
2. Increasing the Tax-Free Savings Account Contribution Limit
Once again, the Tax-Free Savings Account contribution limit is being increased. Back in 2019, the limit for annual contribution was increased to $6,000, and in 2020 the limit is also $6,000. Therefore, if you were eligible to contribute to TFSA in 2019 but you never contributed, your contribution room would be as much as $75,500.
In the TFSA, the money grows without taxes.
3. Different Limits and Rates
There are a few changes when it comes to rates and limits. For instance, while the Employment Insurance Premiums stay at 1.58%, the maximum insurable earnings will grow to $56,300, while they used to be $54,200 before this.
There are increases in provincial and federal income tax brackets in order to handle the inflation. Furthermore, the amount of maximum pensionable earnings goes from $58,700 to $61,600. The employee and employer contribution rates also changed, going from 5.25% to 5.45%.
Expect the Canada Child Benefit to be indexed to inflation too. This year, parents can get $6,765 if children are younger than 6 and $5,708 if children are between 6 and 17 years old.
4. Canada Training Benefit
Something that will be introduced is the Canada Training Benefit. It was the federal government’s idea as a result of the labor force disruption caused by technology advancements. With this credit, people will be able to pay half the training fees and tuition, getting the chance to develop professionally. Then, when you get a job, you’ll be able to get a tax credit of up to $250 every year, which will be added to a national account. Later, you can use this money for certain purposes as long as you are eligible.
You can only get $250 annually if you:
- Are at least 26 years old and not older than 65 when the year ends
- File your tax return for that year.
- Have eligible earnings that are at least $10,000, and a maximum of $150,000 the entire year
- You are a Canadian resident that year
Once you file your income taxes, everything will be written on the Notice of Assessment you get from your CRA. This should help you monitor the balance you have in your national account.
5. Basic Personal Amount
You may be eligible for a basic personal amount. It’s an amount you can receive without having to offer an income tax, and it’s non-refundable too. Because of inflation, the amount is going to increase. At the moment, it sits at $13,229, but it is possible for it to increase faster, according to the Liberals. They say that for the next 4 years, the amount will increase by 15%. As such, it will become $15,000.
There are some things to bear in mind regarding the basic personal amount. Not everyone will be able to get a tax break. For instance, Canadian people who earn over $214,368 will not have a tax break when it comes to the basic personal amount, and people who get over $150,473 will get a reduced basic personal amount.
6. Senior Tax Breaks
The Old Age Security (OAS) was increased. 75-year-old seniors who get less than $77,580 will receive 10% more in OAS. When the Liberals made this change, it was an annual OAS increase of $729 starting from July 2020.
Changes were also made to the Canada Pension Plan. Basically, the maximum amount of pensionable earnings went from $57,400 to $58,700. At the same time, if you are older than 65, not getting CPP benefits and your spouse passes away, then you can receive 60% of the pension of the deceased spouse.
7. Parent Tax Breaks
Parents can now get a tax break thanks to the federal government. Starting with 2020, any paternal or maternity benefits you got through EI can be tax-exempt. So, this will bring an additional $1,800 annually for a person that earns $45,000 every year and receives EI benefits.
The Child Disability Benefit also doubled for parents who have disabled children. It applies to people who receive DTC. It might bring an extra $2,800 to parents taking care of a disabled child who is younger than 18.
It’s important to keep in mind the new tax changes if you are going to file your taxes in Canada soon. Canadian taxes are probably confusing at times, and these changes made the matter even worse. Hopefully, this article was able to bring certain things to light. If you also want to know more about CERB and how much you will pay in taxes on CERB, you can check out this article.