2022 personal tax season: What’s new for 2021 tax returns

In this blog, we highlight key changes for 2022 personal tax returns filings in the following areas:

• electronic notices of assessment for electronic filers
• employee benefits and COVID-19-related relief
• Climate Action Incentive no longer claimed on T1 returns
• automobile expenses and zero-emission vehicles
• not-yet-enacted proposals that might affect 2021 returns

Please note that we have a separate blog on the 2021 Home Office Expenses.

If we find out about more T1 filing developments after the time of writing, we’ll update you with posts on our Canadian tax news and COVID-19 updates webpage. Be sure to check it regularly for the latest Canadian tax news.

Electronic notices of assessment for electronic filers

Budget 2021 proposed to significantly change how the CRA communicates with taxpayers and their advisors. The proposal would allow the CRA to send certain Notices of Assessment (NOA) to a taxpayer electronically without the taxpayer’s authorization. We previously raised some fundamental concerns over the proposal that we believe should be discussed and dealt with before implementation. See our September 21, 2021 post “Budget 2021 electronic notices of assessment proposal” on our tax news webpage for details.

The proposal would apply to individuals who file their own income tax return electronically through NETFILE and those who hire a tax preparer to file their income tax return electronically through EFILE. Under the proposal, these individuals would no longer receive a paper copy of their NOA by mail. For returns filed through EFILE, taxpayers’ options would be to receive their NOAs through My Account or from their tax preparer.

The CRA previously indicated to us that they intended to implement the NOA proposal for 2021 T1 tax returns. They have now confirmed they plan to start implementation in July 2022, after consulting with key stakeholders.

Overall, we agree that the CRA stands to significantly reduce the number of paper NOAs with this proposal. This would be a positive result, but even with the delay, our concerns remain. We will continue to work with the CRA on this.

Update: Based on draft legislation released for comment on February 4, 2022, it appears that this proposal will now be effective on January 1, 2023. We have asked the CRA for an update on their plans.

Employer-provided benefits

The CRA updated their guidance on temporary relief on some employer-provided benefits as a result of COVID-19, extending administrative rules introduced for 2020 to apply to 2021 and 2022, and expanding some of them as follows (see the CRA’s webpage for more information).

Commuting costs

If an employee continues to work at their regular place of employment, the CRA will not consider a taxable benefit to arise where an employer provides a reimbursement or reasonable allowance for additional travel expenses (over and above normal commuting costs) to employees for commuting between their home and place of employment.

Similarly, where an employee works from home while their regular place of employment is closed because of the pandemic, no taxable benefit arises where the employer reimburses or provides a reasonable allowance for the employee’s costs to commute to their regular place of employment for any purpose that enables them to do their work from home (e.g., to collect work equipment or supplies).

This relief is also extended to the use of employer-provided motor vehicles.

Employer-provided parking

The CRA states that when “a regular place of employment is closed due to COVID-19, including situations where employees have been sent home by the employer, or have been given the option to work from home on a full-time basis due to the pandemic,” the CRA will not view employer-provided parking at the regular place of employment as a taxable benefit. This wording appears to be broader than the original 2020 announcement, which simply referred to the place of employment being closed.

However, if the employee worked in the workplace part-time (even one day a week), then the CRA would consider this to be a taxable benefit.

Computer and home office equipment

An employer-provided reimbursement of up to $500 from March 15, 2020 to December 31, 2022 for the purchase of computer or home office equipment for an employee to perform employment duties at home does not count as a taxable benefit to the employee. Keep in mind, however, that the reimbursement is capped at $500, and this limit applies for the entire qualifying period.

For example, say an employee is fully reimbursed for a $400 computer monitor bought in 2020 and a $250 office chair bought in 2021 that they plan to keep after the pandemic. In this case, the amount over $500 (that is, $150) must be included in employment income for 2021 when the employee’s T4 is prepared.

The CRA confirmed that an accountable allowance — where the employee must produce receipts for their expenses and return unspent amounts — are also eligible for the equipment reimbursement rule.

We have confirmed with the CRA that all these policies apply to 2020, 2021 and 2022. Given that different guidance was provided when T4s for 2020 were due, employers should check to see whether amended T4s for 2020 are needed.

Note that the government had previously announced that the automobile standby charge relief applied to both 2020 and 2021.

These recent announcements are included in the CRA’s newly published 2021 T4130 Employers' Guide — Taxable Benefits and Allowances.

Repaying COVID-19 support payments

Individuals who repay certain COVID-19 benefits before January 1, 2023 (because they were not eligible or opted to repay them) can choose to deduct the amount on their tax return for the year they received the benefit or the year they repaid it. They can also split the deduction between the two returns as long as the total deduction is not more than the total repayment.

Repayments made in 2021 will be reported on 2021 T4A slips. Care will be needed to ensure the deduction is not missed or double-counted.

Repayments made on or after January 1, 2023 must be deducted in the year of repayment.

Also, keep in mind that the government has provided targeted interest relief for Canadians who received COVID-related benefits in 2020 that are subject to repayment and meet certain conditions. The CRA has indicated that the decision on whether to deduct the amount on the 2020 or 2021 return would not affect the interest relief (see 2021 CPA Canada/Provincial Roundtable Questions to Canada Revenue Agency, page 5).

Climate Action Incentive (CAI) no longer claimed on T1 returns

On December 3, 2021, the federal government released a backgrounder and draft legislation that changes how CAI payments are delivered. For 2021 and later tax years, the amount will no longer be claimed annually as a refundable credit on personal income tax returns. Instead, taxpayers will receive quarterly payments through the benefits system.

Individuals would still need to file a tax return in order to receive quarterly CAI payments for April 2022 to March 2023 (i.e., the next fuel charge year). Returns are also required for taxpayers to indicate that they live outside a census metropolitan area and qualify for the rural supplement for the upcoming fuel charge year.

To give the CRA enough time to develop the new system, payments would start in July 2022 with a double-up payment covering the two quarters beginning April and July 2022. To avoid follow-up queries, it may make sense to highlight this news in your communications with clients.

Automobile expenses and zero-emission vehicles

The definition of a zero-emission vehicle under the automobile expense rules has changed for vehicles acquired after March 1, 2020. A vehicle may still qualify as a zero-emission vehicle if the vehicle was subject to a prior capital cost allowance or terminal loss claim, as long as the vehicle was not:

• acquired by the taxpayer on a tax-deferred rollover, or
• previously owned or acquired by the taxpayer or a non-arm’s length person or partnership

Not -yet-enacted proposals that might affect 2021 returns

At the time of writing, no legislation has been released for a number of Budget 2021 proposals that would affect 2021 returns, including the measures below. The CRA has indicated that when the legislation is “finalized” (presumably when draft legislation is released), the CRA will electronically republish any guides and forms that need revising because of the legislation. Taxpayers who file their returns before the revised forms are available may need to change their returns accordingly.

Disability tax credit (DTC)

For 2021 returns, DTC claimants should review proposed rule changes relating to the mental functions necessary for everyday life, life-sustaining therapy and calculating therapy time. See Budget 2021 for details.

Postdoctoral fellowship income

Beginning in 2021, another proposal would count postdoctoral fellowship income as earned income for registered retirement savings plan (RRSP) purposes, retroactively to 2011. This would give postdoctoral fellows more room to contribute tax-deductible funds to an RRSP, pooled registered pension plan or specified pension plan.

Update: Draft legislation released by the Department of Finance on February 4.

In addition, the government has released proposed legislation on the following two measures, both of which are applicable for the 2021 taxation year:

Northern residents deductions

Budget 2021 proposed to change the deduction for travel benefits and make it available to eligible northern residents who take a trip even if their employer does not provide personal travel benefits. The CRA has updated Information Sheet RC4650, Northern Residents Deductions and Form T222, Northern Residents Deductions for 2021, for these changes.

Eligible Educator School Supply Tax Credit

The Economic and Fall Update 2021 proposed to increase the Eligible Educator School Supply Tax Credit to 25 per cent (from 15 per cent) on eligible supplies, to a maximum of $1,000. Purchased supplies may be eligible no matter where they are used. The list of eligible teaching supplies has also been enhanced to include certain electronic devices. An eligible educator making a claim would be required to provide a certificate from their employer attesting to the eligible supplies. The CRA has updated their guidance on the credit, as well as the 2021 T1 return to reflect these proposed changes.

Updates from the CRA

As noted earlier, we are waiting for answers from the CRA on a number of questions. We will highlight any changes on our Canadian tax news and COVID-19 updates webpage.

Disclaimer

The views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.