How You Can Prepare for the 2022 Canadian Tax Changes 

_{By Bromwich+Smith Staff | 1273 words | Reading Time: 6 minutes, 21 Seconds | Date: 2022/01/14}

If you are struggling to make ends meet each month, you may be relying too much on your credit cards. If you keep using your credit cards as a stop-gap measure to make ends meet, you'll quickly wind up in debt. That will limit how much money you have each month to pay bills, save for retirement, or work toward another financial goal.

Start Saving Each Week

Like investing, saving is another passive approach to growing your wealth, albeit more gradually. To take control of your finances right now, open and direct money into an interest-bearing savings account on a regular basis (every week, month, or a certain time of year, for example). Bottom-line: pay yourself first by putting aside savings.  

Become an Investor

There are two ways to make money: earning it actively by working for it or earning it passively, while you sleep. Saving or investing the money you have in stocks, bonds, mutual funds, real estate, or other financial instruments can help you start building your overall wealth. 

Benjamin Franklin’s insight in saying, “Nothing is certain except death and taxes”, rings truest whenever there are tax changes. In Canada, on December 27, 2021 the tax change report was released by the Canadian Taxpayers Federation. There are critical changes coming which will impact Canadians that are already hard-hit and worn down by a global pandemic. At the same time provinces such as Alberta, Prince Edward Island, and Nova Scotia have not moved tax brackets to align with inflation - this is called bracket creep. Bracket creep happens when governments don’t move tax brackets with inflation and inflation automatically bumps taxpayers into a higher tax bracket even though they can’t actually afford to buy more. 

According to the Canadian Taxpayers Federation in 2020, the average Canadian family paid more than 36 per cent of its budget to taxes. To be more specific, that's more than the average Canadian family pays for food, shelter and clothing combined. So yes, nothing is certain except death and taxes but what can help is having an understanding of the tax changes to come in order to create a plan of attack to manage them. We will try to highlight the key points but you can also read the CTF’s 2022 New Year’s Tax Changes report here.

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The New Year’s Tax Changes report outlines the major tax changes that are occurring in 2022 for each province. Some of the changes are to income taxes (specifically Canada Pension Plan and Employment Insurance contributions), carbon taxes and property taxes. 

Key takeaways from the report are:

• Taxpayers making $40,000 or more in 2022 will see the federal government deduct more money.
• The Canada Pension Plan tax increase will cost employees and businesses an extra $333 each in 2022 (for maximum pensionable earnings).
• The Employment Insurance tax increase will cost each employee an extra $63 in 2022 and businesses an extra $89 (for maximum insurable earnings).
• The increase in the federal personal basic amount will save taxpayers $89.
• The federal carbon tax will increase for the third time during the pandemic to 11 cents per liter of gasoline on April 1, 2022.
• Alcohol taxes will increase for the third time during the pandemic on April 1, 2022. Taxes already account for about half of the price of beer, 65 per cent of the price of wine and more than three quarters of the price of spirits.

You're probably asking yourself, how does one prepare for changes like this that impact our finances? The best way is to take control of your finances and implement strategies that can help you manage unexpected changes like taxes but also help you achieve your financial goals. 

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Financial Strategies to Control Your Finances

We have several strategies to support you in managing the tax changes to come while supporting you in meeting any financial objectives you have in mind. We have found these to be great tips to manage your finances. 

Tips for you

Read Books About Personal Finance

If you need help with your finances but aren't sure where to start, seek financial wisdom from books written by experts. To boost your savings, you can buy used financial books online or borrow them for free at your local library. Consider audiobooks if you would rather receive the advice by ear.

Start Budgeting

Even if you are not struggling with your finances, creating a budget can help you prepare for unexpected changes and ensure financial stability. The plan starts with writing down your income and all your expenses, and then subtract the expenses from the income to determine your discretionary spending. At the start of each month, set up a budget to allocate how discretionary funds get spent. Track the spending over the course of the month, and at the end of the month, determine whether you stuck to the budget. If you spent more than you made, you can fix your budget by cutting unnecessary expenses or, if possible, earning more. Then you can implement the revised budget next month. 

We have also partnered with Cacheflo who will be hosting a free monthly webinar called the: Financial Capability Series till the end of the year. With no extra cost to sign up, what are you waiting for?   

Reduce Monthly Bills

One of the easiest things you can do to take control of your finances is to cut your monthly expenses. While you may not be able to reduce certain fixed expenses, such as rent or a car payment, without drastically altering your lifestyle, you can reduce variable expenses, such as clothing or entertainment, by being flexible and thinking frugally. 

Stay home and cook dinner in

Looking for an easy way to take control of your variable expenses every month? Curb the habit of eating out. The occasional splurge at a nice restaurant is fine, but the savings can add up if you start cooking at home or bringing bagged lunches to work instead of eating out each day.

Plan a Monthly Menu

Planning a monthly menu can help you save money each month.

If the idea of cooking every night is off-putting to you, plan a monthly menu to make it less intimidating. The advantage of planning meals for the entire month is that you can chop foods or cook meals in batches. This approach also makes it easier to shop for groceries and ensures that you waste less food because you will most likely use all the ingredients you buy while they are still fresh.

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Pay Off Your Debt

One of the most expensive mistakes that you can make is to carry a lot of debt, especially high-interest credit card debt. If you want to change your financial picture and gain more financial opportunities, pay off your debt as quickly as possible. We have a lot of options at your disposal like debt consolidation and a consumer proposal. 

Curb Your Credit Card Use

Increase Retirement Savings

Even if you are working on getting out of debt, contribute up to the match offered by your employer if that is available to you. If you are out of debt, work on increasing your savings..

Make the Most of Employee Benefits

In addition to your retirement plans and health insurance, your company may offer additional employee benefits, such as dental insurance, vision insurance, and flexible spending accounts. Take the time to evaluate your options so that you get the most from your employee benefits. 

We hope that this information will put some ease in dealing with the upcoming 2022 tax changes.  We also want you to know, we are here for you if you are struggling financially. Don’t hesitate to give us a call today to receive an initial free, no obligation, confidential consultation by phone 1-855-884-9243. You can also request a call. We want to help you conquer your debt and rebuild your worth.