16 February, 2021 Tax Planning

Tax Planning: What’s Changed for 2021?

Couple speaking with financial advisor.

Written by Letitia Fluit

In 2020, life changed for everyone more drastically than ever before. To accommodate these shifts in lifestyle, the Government of Canada has released a list of major tax changes. 

Below, we outline what you need to know about each of them, so you can plan well and keep more of your money in your pocket.

Tax filing for 2020: How has COVID-19 affected tax planning?

While the emergence of COVID-19 in 2020 caused last year's tax filing deadline to move to June 30th, this year it's April 30th again.

There are a few major notes related to COVID-19 and tax filing:

  • Anyone who worked from home in 2020 is eligible to claim up to $400 in employment expenses. This flat rate allows for $2 claimed per day up to a maximum of 200 days, with no detailed forms required.
  • If you or your spouse received Canada Emergency Response Benefit (CERB) payments, no income tax was withheld when these were paid. CERB payments are included in income, taxable as ordinary income, so this will likely affect your taxes owing.
  • CERB has transitioned to three new benefits: the Canada Recovery Benefit (CRB), the Canada Recovery Sickness Benefit (CRSB), and the Canada Recovery Caregiving Benefit (CRCB). These benefits are also taxable and the Canada Revenue Agency (CRA) will withhold 10% tax at source from the amounts distributed. Additional income earned during the year will affect how much more tax might be owing on these benefits. If you travelled internationally, it may also affect your eligibility for claiming these benefits.

Changes for individuals: brackets, limits and basic personal amount

For taxable income in 2021, Federal and provincial income tax brackets have increased to keep pace with inflation. See them on the Government of Canada’s website.  

For those of you contributing to CPP, the maximum earnings have increased to $61,600 in 2021, up from $58,700 in 2020. Similarly, you’ll be contributing a little more of your paycheque, as the employee and employer contribution rates for 2021 will be increasing by 5.45%, up from 5.25% in 2020.

As was the case last year, the Canada Child Benefit continues to be indexed for inflation. In 2021, the maximum a parent can receive is $6,765 for children under age 6 (up from $6,639 in 2020) and $5,708 for children ages 6 to 17 (up from $5,602 in 2020).

In 2021, the annual contribution limit on the Tax-Free Savings Account (TFSA) is again $6,000. So, for those who don’t have one, the maximum to contribute could be up to $75,500.   

Curious to know more about the major differences between TFSAs and other accounts? Read our primer on account types.

The basic personal amount — a non-refundable tax credit that all taxpayers are eligible to claim — is currently at $13,229 for the tax year of 2020, but is set to rise annually with inflation. The current Liberal federal government has promised to increase it more quickly — 15% over the next four years — reaching $15,000 in 2023.

However, not everyone is entitled to this tax break. Canadians earning more than $150,473 (the second-highest tax bracket) will have a reduced basic personal amount. Those earning over $214,368 won’t receive a break from the basic personal amount at all.

Spouse or common-law partner amount and the amount for an eligible dependent have also increased for most taxpayers.

New measures for small business tax filing

Small business owners will be glad to hear of new measures announced by the government of Ontario

If your business declined in revenue by 20% or more (comparing April 2019 with April 2020), the government is offering one-time funding of $10,000 to $20,000 for businesses with fewer than 100 employees. You are also eligible if you were required to close during the December 26 Provincewide Shutdown.

Finally, the federal government has introduced the Canada Training Benefit to help with disruption in the labour force due to changes in technology. This refundable tax credit is designed to lower the barrier to professional development and to provide financial support to help pay for tuition and training fees. As a worker, you’ll be eligible to receive up to $250 annually as a tax credit. For many of our clients, this may not be relevant to yourself personally, but we recommend that you let your employees know about it. The same goes for claiming home office expenses.

There are also some new tax breaks for parents with school-age children, which we won’t go into detail on here. If you’re looking for more info on anything listed here, please see this outline and this 2020 tax guide from the Government of Canada.

Need some help to develop a tax planning strategy?

Income tax is the single biggest expense for Canadian families — and Canadians are some of the most heavily taxed citizens in the world.

Understanding your eligibility for tax breaks and the documentation needed for them can help prevent any surprises and expedite what is a tedious process for many.

You can create a comprehensive tax plan with one of our advisors so that absolutely nothing slips through the cracks — especially this year, with more changes than ever!