Timing chain tension with a .040" deck would still be fine. Taking that much off the block is fine, the factory gasket is quite thick. Aftermarket pistons, especially off the shelf pistons, are typically .010" shorter than factory to make room for cleaning up the deck. So, at a guess, the builder was looking for a higher comp ratio, closer to 9.5-9.7 to 1. if they decked the head as well the ratio could be anywhere north of that.. Now, for future reference, your deck height is measured from the center of the crank bearing boss to the top of the deck. Measuring from the oil pan landing can be misleading without knowing if the bottom of the block has been "cleaned up", or even if the factory machined it long or short ( Yup, even Toyota has variance on their machining).
If the block IS decked .040" your timing would be retarded 2 or 3 degrees. That much timing won't change much, maybe move your powerband 100-250rpm higher. If that is a concern offset sprocket pin or adjustable sprocket would be on your parts list.
If you're concerned about the piston popping up above the deck the factory head gasket, as well as aftermarket pieces, are quite thick. As long as the piston and valves don't try to occupy the same space at the same time and the piston doesn't come within .030" of the head surface things should be fine. Then all you have to worry about is comp ratio.
It has been a while since I've played with the early 20/22R. Just about anything you can imagine I've done to that engine.
