With the start of 2023 comes some good news for individual filers. The basic Personal Amount is increased to $15,000 (from $14,398 in 2022.) The new changes are summarized below. Whether you’re an individual or a business filer, have a chat with the tax lawyers at Taxpage. They provide many services that can help you reduce your tax expense.
Basic Personal Amount
One of the best pieces of news for Canadians in a while is the increase in the basic personal amount (BPA).
The BPA is a tax credit that can be claimed by all Canadians. It allows taxpayers to earn up to the basic personal amount without having to anything in federal income tax.
The rate is $14,398 for 2022 and is increasing to $15,000 for 2023, which gives a bit more room as a taxpayer before you start paying federal income tax.
Federal Tax Bracket Changes
Federal tax brackets are changing in 2023 to account for inflation. The federal tax rates are not changing, but the earnings brackets are increasing, which will mean lower average tax rates.
On the first $53,359 of employment or self-employment income, you will be taxed at only 15.00%, or:
- At 20.50% on income between $53,359 and $106,717
- At 26.00% on income between $106,717 and $165,430
- At 29.38% on income between $165,430 and $235,675
- At 33.00% on income of $236,675 or more
These brackets are for federal taxes and does not account for provincial tax rates.
Tax-Free First Home Savings Account (FHSA)
The First Home Savings Account coming in March 2023 is designed to help Canadians save up for the purchase of their first home. It is a tax-sheltered account similar to a Tax-Free Savings account (TFSA) and Registered Retirement Savings Plan (RRSP).
Like the TFSA, the funds you invest in the TFHSA will grow tax free. Additionally, the funds you contribute will give you a tax deduction on your personal taxes, the same way contributions to RRSP work.
TFHSAs will have a lifetime contribution limit of $40,000 and an annual contribution limit of $8,000. If you cannot contribute the full amount in any year, the unused limit with carry forward to the subsequent year.
Multi-Generation Home Renovation Credit
As many Canadians live in multi-generational homes(grandparents, parents and children living together), the Federal Government will provide support to these families by through a home renovation tax credit up to $7,500 for renovations made to build a secondary suite for a senior or an adult with a disability.
RRSP Contribution Limit Increase
RRSP (Registered Retirement Savings Plan) is a savings plan registered with the Canadian government and is designed to help Canadians save up for retirement.
The maximum limited is calculated at 18% of earned income. This is not changing, however, the maximum amount, which was capped at $29,210, is increasing to $30,780.
TFSA Contribution Limit Increase
TFSA or Tax-Free Savings Account allows you to contribute cash or investments into your TFSA with the investment growing inside the TFSA tax free.
Unlike with RRSP, there is no tax deduction when you contribute to your TFSA, however, funds are not taxed when you withdraw them from your TFSA.
The TFSA annual contribution limit is increasing from $6,000 to $6,500 in 2023. The program has started in 2009, and if you have not contributed before into a TFSA account, your maximum contribution limit will be $88,000.
CPP Contribution Rate Increases
The new CPP Employee and Employer contribution rates for 2023 will increase to 5.95%, up from 5.70% in 2022, at the same time the maximum pensionable earnings under the Canada Pension Plan (CPP) for 2023 will be $66,000, up from $64,900 in 2022. The basic exemption amount for 2023 will remain at $3,500.
EI Contribution Limit Increase
The new Employment Insurance (EI) contribution limit for 2023 will increase to $61,500, up from $60,300 in 2022. In 2023, the employee EI premium will be $1.63 per $100 of earned income, this means that insured workers will pay a maximum annual EI premium in 2023 of $1,002.45 compares with $952.74 in 2022.
Because of the increase in premium, beginning in 2023, the maximum weekly EI benefit rate will increase from $638 to $650 per week.
Lifetime Capital Gains Exemption Increase
The lifetime capital gains exemption on qualifying capital gains is increasing to $971,190 in 2023, up from $913,630 in 2022, which is an increase of $57,560
Residential Anti-Flipping Rules
The 2022 Federal Budget proposed to target house flippers who avoid claiming income from their flips by using existing shelters for primary residences. So, for individuals who purchase a house (or any type of residential property) and sell it for more than the purchase price, and:
- The sale occurs within 12 months of the original purchase
- The sale was not due to a major life event
The sale would be required to be reported as business income, and they would not be able to claim the property as either a capital property or a principal residence.
