Update on Certain Proposals Impacting 2022 Tax Filings
As noted in our recent tax blog, there are several Budget 2021 proposed tax measures that would impact 2021 personal income tax returns. As these measures have not yet been enacted, there has been uncertainty on how affected taxpayers should file T1 returns. In an item dated February 18 on the EFILE news page of the Canada Revenue Agency (CRA), it stated that the refundable credits changes included in Bill C-8 (Economic and Fiscal Update Implementation Act, 2021) could not be processed until the Bill receives Royal Assent. Bill C-8 was at the Report Stage in the House of Commons at the time of writing and it is unclear when Royal Assent will be received. We followed up with the CRA to see if it could provide more details, and we now understand that proposed tax changes for 2021 T1s will be administered as follows:
- Northern Residents Deduction – The 2021 versions of Form T2222, Northern Residents Deductions and Guide 4650, Northern Residents Deductions for 2021, have been updated to reflect the proposals included in Bill C-8. The CRA has confirmed with us that individuals can claim the Northern Residents Deduction based on the proposed legislation and tax return processing will not be delayed.
- School Supplies Tax Credit and Return of Fuel Charge Proceeds to Farmers Tax Credit – The proposals for these two refundable tax credits are also included in Bill C-8. Although the 2021 T1 return as well as the guidance on Line 46900, Eligible educator school supply tax credit and Line 47556, Other refundable credits have been updated to reflect the proposals, the CRA has indicated to us that they cannot assess a new or enhanced refundable credit based on proposed legislation.
As such, if a return is filed claiming either of these credits prior to the legislation receiving Royal Assent, there will be a processing delay as the entire return will be held by CRA until Bill C-8 has passed. Therefore, taxpayers and their advisors will need to decide on whether they want to file the T1 return with or without a claim for these credits. If they file without the claim, any refund due without the additional credit will not be delayed but a T1 adjustment will have to be filed later once Bill C-8 receives Royal Assent.
Proposals on Electronic Filing Thresholds for Prescribed Information Returns
The February 4, 2022 draft legislation includes measures which amend electronic filing thresholds for prescribed information returns. Proposed subsection 205.1(1) of the Income Tax Regulations requires a taxpayer to file prescribed information returns (such as T4s and T5s) electronically if more than 5 of one type of a prescribed information return are required to be filed in a calendar year (the current threshold is 50). This proposed amendment applies in respect of prescribed information returns filed after 2021 and there are associated penalties for non-compliance.
Since most 2021 tax year information returns will be filed by the time the legislation receives Royal Assent, the CRA has confirmed that the new mandatory electronic filing penalty under proposed paragraph 162(7.02)(a) of the Income Tax Act (i.e. $125, which applies to paper returns containing more than 5 slips and less than 51 slips), will not be assessed for returns filed in 2022. The CRA will publish additional guidance over the coming months.
We are still confirming with the CRA on how it will be administering the proposed measures with respect to electronic filing thresholds for tax preparers and electronic payments. These measures are also effective for 2022 and have associated penalties. We will provide you with updates on this page when more information is available.