This year's tax changes include:
- New federal tax brackets.
- A higher Basic Personal Amount.
- Changes to the COVID benefit repayment.
The COVID-19 development and high inflation of 2022 resulted in several changes to the Canadian tax system.
Taxpayers must be aware of these changes when filing income tax returns in 2023 and beyond.
1. New Tax Brackets
To help Canadians offset inflation, which was at a historic high last year, the federal government has adjusted tax brackets for the 2022 tax year.
The new brackets and tax rates are as follows:
- Up to $50,197 of income is taxed at 15%.
- Income between $50,197 and $100,392 is taxed at 20.5%.
- Income between $100,392 and $155,625 is taxed at 26%.
- Income between $155,625 and $221,708 is taxed at 29%.
- Above $221,708, income is taxed at 33%.
2. Basic Personal Amount (BPA) Increase
The Basic Personal Amount (BPA) is a non-refundable tax credit that can be claimed by any Canadian who files income taxes.
The BPA is a tax break that gives individuals making less than a certain amount a full income tax reduction. Taxpayers who make more than this basic amount receive a partial reduction.
In December 2019, the Government of Canada announced a goal to increase the Basic Personal Amount to $15,000 by 2023. This increase is being phased in over time and will reach $14,398 for the 2022 tax year.
3. First-Time Home Buyers' Tax Credit (HBTC) Doubled
The First-Time Home Buyers' Tax Credit is a federal government initiative to make homeownership more affordable for some Canadians by providing a tax credit on purchasing newly built homes.
As of December 2022, eligible first-time home buyers can now claim a $10,000 non-refundable tax credit — double what they could before — which could result in tax savings of up to $1,500.
The Home Buyer's Tax Credit will help you offset taxes you owe—enter the amount of $10,000 on Line 31270 of your income tax return.
4. The Old Age Security (OAS) Income Limits Were Adjusted
The Old Age Security (OAS) program provides retired Canadians with income to help them throughout retirement.
However, seniors who make less income are sometimes asked to pay back some of their OAS.
The following are the revised thresholds for the 2023 tax year:
- Minimum income recovery threshold: $80,761.
- Maximum recovery thresholds for ages 65-74: $134,626.
- Maximum recovery threshold for ages 75 and above: $137,331.
5. Canada Pension Plan Contributions Increase
The Canada Pension Plan changed in 2023. The new calculations will be based on a legislated formula using the average growth rate of salaries and weekly wages earned throughout Canada.
The maximum pensionable earnings under the Canada Pension Plan (CPP) will be $66,600 in 2023. The basic exemption amount stays the same at $3,500 in 2023.
The CPP contribution rate has also been adjusted accordingly.
Employees and employers will pay 5.95% of their income in 2023 (up from 5.70% in 2022) to a maximum contribution of $3,754.45.
Self-employed individuals will pay 11.90% of their income in 2023 (up from 11.40% in 2022) toward a maximum contribution of $7,508.90.
6. Registered Retirement Savings Plans (RRSP)
The annual dollar limit for RRSPs is $29,210 for the 2022 tax year, an increase from $27,830 in 2021.
However, remember that your contribution limit is still capped at 18% of your earned income.
7. Covid-19 Repayment
The Government of Canada created COVID-19 benefits to provide financial aid to those affected by the pandemic.
Those who received COVID-19 benefits in 2022 will receive a T4A slip showing all the information required to complete their income tax return.
Individuals with incomes over $38,000 might be required to pay back part or all of the benefits received.
Refusal to repay may result in the Canada Revenue Agency keeping some or all future payments, including tax refunds and GST/HST credits.
If you can't pay in full, the CRA may work with you to arrange a payment plan.
Next Steps
If you have any general queries about Canadian Tax or this article, please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.