Canada Revenue Agency: 2 Useful Tax Breaks for 2021

The next tax season is months away but it would help if Canadian taxpayers can find out the useful tax breaks available to them for the income year 2021.

| More on:
edit CRA taxes

Image source: Getty Images

The Canada Revenue Agency (CRA) did not find it necessary to extend the tax filing and tax payment deadlines in 2021 for the income year 2020. Thus, it will most likely stick to the usual deadlines in the coming tax season. However, Canadian taxpayers can expect the tax agency to accept tax returns for the income year 2021 earlier just as it did this year.

If you’re a taxpayer, mark April 30, 2022, as a very important day in your calendar. You don’t want to be late because the CRA charges penalties for late filing of tax returns. Apart from early preparation, it would be best to review available tax breaks to reduce your tax payables. Here are two useful ones for 2021.

1. New BPA

Every Canadian taxpayer is entitled to the claim basic personal amount (BPA) during tax seasons. The amount adjusts higher annually so people can cope with inflation. For the 2021 tax year, the BPA is $13,808 versus the previous year’s $13,229. Thus, an individual taxpayer gets an additional tax break of $579.

The income up to the extent of the new BPA is non-taxable, provided net income is $151,978 or less. Also, the additional amount reduces as you go up the income tax bracket.

2. Work-from-home tax breaks

The CRA is aware that many Canadians still work from home or are doing remote work in 2021. This tax break is available if you spent at least 50% of your working hours at home for four consecutive weeks this year. There are two ways to go about the claim.

The maximum amount is $400 or $2 per day for 200 working days in the temporary flat rate method. Individual taxpayers with higher home-office expenses to write off can use the detailed method. However, the CRA requires an employer-signed T2200S form.

Increase non-taxable income

There are many ways you can use these tax breaks in order to boost your investment income. You can use these tax breaks to purchase stocks or investments and hold them in your tax-advantaged accounts.

Tax-conscious Canadians use their Tax-Free Savings Accounts (TFSAs) to create non-taxable income. Similarly, seniors maximize their TFSAs to avoid or lessen the impact of the 15% Old Age Security (OAS) clawback. All interest, income, and gains from the account are tax-exempt. Even TFSA withdrawals are tax-free.

Most TFSA investors prefer dividend stocks to hold in their tax-advantaged accounts. For example, Alaris Equity Partners (TSX:AD.UN) is one of the TSX’s dividend titans. The $828.65 million private equity firm pays a super-high 7.16% dividend. A $25,000 in the stock will generate $1,790 tax-free income in a TFSA.

Alaris has a pending issue with the CRA regarding the use of non-capital losses, accumulated scientific research, and experimental development expenditures and investment tax credits. The company contests the tax agency’s reassessed taxes and interest (2009 to 2020) of approximately $58.0 million.

Reduce tax payables

The new BPA and work-from-home or medical expense tax breaks are useful in reducing tax payables. Visit the CRA’s website for other tax credits and deductions you might be missing out on. Optimize your TFSA as much as possible to increase non-taxable income.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Alaris Equity Partners Income Trust.

More on Dividend Stocks

Dividend Stocks

Enbridge Stock: This Dividend Aristocrat Looks Like a Steal in 2023

Here are some key factors that make ENB a great Canadian dividend stock to buy on the dip in 2023.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

U.S. Debt Ceiling: Is It Safe to Invest Right Now?

The U.S. debt ceiling is in the headlines again. You can play it safe by investing long term in wonderful…

Read more »

analyze data
Dividend Stocks

How to Invest $20,000 to Make Ultra-Safe Passive Income

Got $20,000 to invest for passive income? These three stocks are perfect for earning ultra-safe passive income for the long…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

For Passive Income: How to Turn $25,000 Into $158 Per Month

High-yield, monthly dividend stocks trading on the TSX such as Slate Grocery can help you earn a predictable stream of…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

2 Canadian Dividend Stocks to Buy for Consistent Passive Income

These top dividend stocks have raised their distributions annually for more than two decades.

Read more »

Piggy bank next to a financial report
Dividend Stocks

Self-Directed RRSP: 2 Top Dividend Stocks to Buy in June 2023

These top TSX dividend stocks look cheap to buy today and offer attractive dividend yields.

Read more »

Dividend Stocks

Looking for Reliable Retirement Income? Consider These Dividend-paying Stocks

National Bank of Canada and another reliable income stock that could be a perfect fit for your retirement fund this…

Read more »

grow money, wealth build
Dividend Stocks

Are You Looking for High-Yield Investments? 3 TSX Stocks That Offer Excellent Payouts

These dividend stocks all offer solid payouts, as well as yields in the five to six percent range. So get…

Read more »