Tax Advice
Canadians: What Changes Can You Expect on Your 2022 Small Business Tax Return?
For most Canadian businesses, the past few years have been irregular at best.
In a January 2021 survey, the Canadian Federation of Independent Businesses found that 1 in 6—or about 181,000—Canadian small businesses are considering closing for good.
Other businesses experienced disruptions or a lower volume of work throughout the pandemic while some entrepreneurs, particularly those who serve the tech industry, may have had record-breaking years.
No matter what the pandemic did to your business in years past, this year’s income tax returns might look a little different. As a small business owner, you may be left wondering how the government will tax financial relief measures that were made available this past year.
Etel Igreda, business tax expert, director, and founder of Blossom CPA says she’s already fielding questions from confused clients who are uncertain about what their tax obligations are this season.
“This year has been a challenge. Small businesses are wondering how to record things like the CEBA (Canada Emergency Benefit Account) loans and how and when to pay it back. There’s been a lot going on in the last few months, and we really don’t see an end in sight.”
Here’s a breakdown of the changes you can expect to see on your tax return this year, including updated tax deadlines.
What’s New This Tax Season
The federal government introduced a number of relief programs to help businesses and employees cope with the economic effects of the pandemic. Here’s a list of the programs small business owners and the self-employed are eligible for, as well as the business tax implications that come with them.
Jobs and Growth Fund
What Is It?
The Jobs and Growth Fund is a $700-million program designed to support regional (provincial) job creation and stimulate long-term economic growth.
If you qualify for the fund as a for-profit organization, you are eligible to receive interest-free, repayable contributions for up to 50% of authorized costs.
Eligible not-for-profit organizations could receive non-repayable contributions for up to 90% of authorized costs.
For more details and information on how to apply, click here.
What Are the Tax Filing Implications?
As a repayable contribution, this will not need to be included in your income.
Work-Sharing Program
What Is It?
If you experience a temporary decrease in your normal level of business activity and the decrease is beyond your control, you may qualify for the work-sharing program.
Under this agreement, your employee(s) who are eligible for Employment Insurance benefits will receive income support while you recover. Employees participating in the agreement must experience a minimum 10% reduction to their normal weekly earnings.
The work-sharing program is a 3-way agreement between employers, employees, and Service Canada.
As the name suggests, the work-sharing program allows you to reduce your overall full-time equivalents (FTEs) while avoiding lay-offs. Employees that participate in this program will share work with another employee and receive supplemental Employment Insurance benefits to make up the difference.
What Are the Tax Filing Implications?
In this program, the employees receiving Employment Insurance benefits will be required to include the payments on their personal tax return (T1).
Canada Emergency Business Account (CEBA)
What Is It?
CEBA is a CRA program that provided an interest-free loan of up to $60,000 to small businesses, the self-employed, and nonprofit organizations to help cover operating costs and avoid closures. The interest-free repayment period and the loan forgiveness period were extended to Dec. 31, 2023. You should have already received a notice from your financial institution letting you know whether you qualified for the extended loan forgiveness. Businesses that were not eligible for the loan forgiveness extension will still qualify for the interest-free period until Dec. 31, 2023.
What Are the Tax Filing Implications?
The amount of loan that is forgiven is considered income for your business and needs to be added to taxable income when you receive the loan—not when you pay it back.
For example, if you’ve borrowed the original amount of $40,000, you include $10,000 in your income. Or if you borrowed the additional amount of $20,000 an additional $10,000 must be included. If you end up not qualifying for the loan forgiveness, you can make a deduction of the amount you previously included in your income. There is some flexibility in the timing of this income addition, depending on whether you’ve used all the loan proceeds or not.
“This loan program was administered by different banks across Canada which has caused some confusion and differences. The rules for how you qualify and spend the money are all over the place. However, it’s basically treated as a liability and if you don’t want to pay interest, pay the right rate by Dec. 31, 2023,” said Igreda.
Deducting Home Office Expenses on This Year’s Tax Return
When the pandemic first hit Canada, nearly 5 million Canadians who typically conducted their work at an official workplace were instantly made to work from home. According to Statistics Canada, in December 2021, just 22% of workers continue to work from home with the rate of women working from home being slightly higher than men.
Thankfully, in December 2020, the CRA made the home office expenses deduction available to more Canadians and simplified the way employees can claim these expenses on their personal income tax returns for the 2020 tax year. This program continued into 2021 and now into 2022.
The 2 methods to claim these expenses are:
1. Temporary Flat Rate
Eligible employees can claim a deduction of $2 for each day they worked at home (for more than 50% of the day over a period of at least 4 consecutive weeks in 2020), plus any other days they worked from home in 2022 due to COVID-19, up to a maximum of $500.
Under this method, employees will not need to get Form T2200 or Form T2200S completed and signed by their employer. They do not need to perform workspace calculations or keep receipts.
2. Detailed Method
Employees who feel they invested more into their home office setup and have eligible business expenses may choose to use the detailed method to claim more deductions on their tax returns.
This is the usual way that most small business owners who work from home fill out their income tax returns. It allows you to claim the actual amounts paid. Check out the detailed calculations required. And here’s a list of all eligible business expenses.
If you have employees who want to claim a home office expense deduction using the detailed method, you will need to sign a T2200S (declaration of conditions of employment for working at home due to the pandemic) or T2200 (declaration of conditions of employment).
Income Tax Deadlines
The filing deadline for your tax return differs depending on how your small business is structured.
“The deadline to file your return and pay your taxes is April 30, 2023. If you’re self-employed or have a spouse or common-law partner who is self-employed, the deadline to file your taxes is June 15, 2023. All taxes owed must be paid by April 30, 2023,” according to Canada.ca.
If you are incorporated, your business must file no later than 6 months after the relevant tax year ends.
Ready to File? Check Out These Tax Filing Resources
Looking for more information—and even some assistance—with filing your small business tax return in 2022?
FreshBooks’ Accounting Partner Program connects innovative accounting firms with the FreshBooks platform and our small business customers to create a collaborative accounting approach. When you sign up, you’ll be paired with a FreshBooks accountant professional to help you sort through your unique needs. Get started here.
Much like 2020 and 2021, the 2022 tax season may come with some confusion. The best bet for small business owners is to learn as much as you can from articles like these and seek the support you need from tax professionals.
This post was updated in January 2023.