The past year has seen a lot of economic volatility, thanks to COVID-19 developments and high inflation.
As a result, there are a number of changes that Canadian taxpayers need to be aware of when filing income tax returns in 2023 and beyond.
1. New tax brackets
To help Canadians keep up with inflation, which has been at historic highs for over a year, the federal government has adjusted tax brackets for the 2022 tax year. Each bracket saw a slight increase from 2021 thresholds, which may mean paying a lower rate on more of your income. The new brackets and tax rates are:
- 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 increase
The Basic Personal Amount, or BPA, is a non-refundable tax credit that can be claimed by anyone who files income taxes in Canada. The goal of the BPA is to give individuals making less than a certain amount a full deduction from income tax. Taxpayers who make more than this basic amount receive a partial reduction.
In December 2019, the Government of Canada set a goal of amending the Basic Personal Amount to $15,000 by the year 2023. This is being done in phases, so the BPA is increasing to $14,398 for the 2022 tax year.
3. First-Time Home Buyers’ Tax Credit doubled
The First-Time Home Buyers’ Tax Credit, also known as the HBTC, is a federal government initiative to make homeownership more affordable for some Canadians.
After the passage of new legislation in December of 2022, eligible first-time home buyers can now claim a $10,000 non-refundable income tax credit — double what they could before — which could result in tax savings of up to $1,500.
There’s no need to apply or be approved for the HBTC; just enter the Home Buyer’s Amount of $10,000 on Line 31270 of your income tax return. The credit will result in a rebate on taxes you owe.
4. Old Age Security income limits changed
Old Age Security, or OAS, is a government program that has been created to provide retired Canadians with a source of income to help throughout their retirement. However, seniors who make too much income are sometimes asked to pay back some of their OAS.
The new thresholds for the 2022 tax year are as follows:
- 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.
If you made more than the minimum amount, you will have to pay back some or all of your OAS. If your income is above the maximum amount for your age group, your OAS might be canceled.
5. Canada Pension Plan earning and contribution increase
Rules governing the Canada Pension Plan are changing in 2023. The new calculations are based on a CPP legislated formula that is based on the average growth rate of salaries and weekly wages earned throughout Canada.
The maximum pensionable earnings under the CPP will be $66,600 in 2023, up from $64,900 in 2022. The basic exemption amount stays the same at $3,500 in 2023.
CPP contribution rates have also been adjusted accordingly. Employee and employer contribution rates are now 5.95% (up from 5.70% in 2022) for a maximum contribution of $3,754.45. For self-employed individuals, the contribution rate will be 11.90% in 2023 (up from 11.40% in 2022) for a maximum contribution of $7,508.90.
6. RRSP dollar limit increase
The annual dollar limit for registered retirement savings plans, or RRSPs, is $29,210 for the 2022 tax year, up from $27,830 in 2021. However, keep in mind that your individual contribution limit is still capped at 18% of your entire earned income.
7. COVID-19 benefit repayment
Throughout the pandemic, the Government of Canada provided financial aid in the form of COVID-19 benefits. These included:
- Canada Emergency Response Benefit (CERB)
- Canada Emergency Student Benefit (CESB)
- Canada Recovery Benefit (CRB)
- Canada Recovery Caregiving Benefit (CRCB)
- Canada Recovery Sickness Benefit (CRSB)
- Canada Worker Lockdown Benefit (CWLB)
Those who received such COVID-19 benefits in 2022 will receive a T4A slip with all the required information needed for their tax return.
In some cases, individuals making more than $38,000 in income may have to pay back part or all of the benefits received. Refusal to repay may result in the Canada Revenue Agency keeping some or all of future payments including tax refunds and/or GST/HST credits. If you can’t pay in full, the CRA may work with you to arrange a payment plan.
Quick tips for filing taxes in Canada
The Canada Revenue Agency requires most Canadian citizens to file their taxes every year. There are a few exceptions, but if you are making money in Canada (even if you live in another country) then you will likely need to pay Canadian taxes.
How you earn money, however, can make a big difference in what the tax payment process looks like. Self-employed taxes work differently than taxes for traditionally-employed folks. Similarly, a Canadian non-resident will file taxes differently than a Canadian resident.
There are online tax programs that can guide you through the process of filing your taxes correctly or, if your situation is complicated, you might consider hiring a professional accountant.
No matter how you file your taxes, there are a few rules everyone should keep in mind:
- File your income tax return on time to avoid penalties — the deadline for most people is April 30, 2023.
- Claim any tax credits you may be eligible for.
- Take any tax deductions you may qualify for.
- Maximize your RRSP if you can, but don’t go over.
- Maximize your TFSA if you can, but don’t go over.
There are several types of taxes self-employed business owners and freelancers must pay in Canada. Plan to set aside 25%-30% of your income to pay them.