The previous year has been financially challenging, and it’s not all due to COVID-19. Canada has faced significant inflation, leading to higher interest rates and skyrocketing prices for everyday items like groceries and gas. However, one thing that hasn’t changed much is taxes.
We still have to deal with them, but there have been some important updates to the tax code that you should be aware of. Here are 7 key Canadian tax changes you need to know:
1. Updated Tax Brackets
In response to the historic inflation rates that Canadians have been grappling with for over a year, the federal government has revised the tax brackets for the 2022 tax year. This revision involves a minor increase from the 2021 thresholds, potentially enabling you to pay a reduced rate on a larger portion of your income. The revised brackets and tax rates are as follows:
- Income up to $50,197 will be taxed at 15%.
- Income in the range of $50,197 to $100,392 will be taxed at 20.5%.
- Income from $100,392 to $155,625 will incur a tax of 26%.
- Income between $155,625 and $221,708 is subject to a 29% tax.
- Any income exceeding $221,708 will be taxed at 33%.
2. Increment in Basic Personal Amount
The Basic Personal Amount (BPA), a non-refundable tax credit, can be claimed by all income tax filers in Canada. The intent of the BPA is to provide a complete income tax deduction for those earning below a specified threshold. For taxpayers earning above this limit, a partial deduction is applicable.
In December 2019, the Canadian Government committed to raising the Basic Personal Amount to $15,000 by 2023. This increment is being executed in stages, with the BPA for the tax year 2022 being raised to $14,398.
3. Doubling of First-Time Home Buyers’ Tax Credit
The Home Buyers’ Tax Credit (HBTC) is a federal government scheme aimed at making homeownership more accessible for certain Canadians.
Following the enactment of new legislation in December 2022, first-time home buyers who are eligible can now claim a non-refundable income tax credit of $10,000 — a twofold increase from the previous amount. This could lead to tax savings of up to $1,500.
To claim the HBTC, there’s no need for an application or approval. Simply input the Home Buyer’s Amount of $10,000 on Line 31270 of your income tax return. This credit will subsequently provide a rebate on the taxes you owe.
4. Modifications to Old Age Security Income Limits
The Old Age Security (OAS) is a government initiative designed to facilitate retired Canadians with income throughout their retirement years. However, there are instances where seniors with high income levels are required to return a portion of their OAS.
The revised thresholds for the 2022 tax year are as follows:
- The minimum income recovery threshold is now set at $80,761.
- The maximum recovery thresholds for individuals from 65 to 74 years of age are $134,626.
- The maximum recovery threshold for individuals aged 75 and above is now $137,331.
If your income surpasses the minimum threshold, a portion or the entirety of your OAS may need to be repaid. If your income exceeds the maximum limit for your age bracket, your OAS may be subject to cancellation.
5. Canada Pension Plan Earning And Contribution Increase
The regulations for the Canada Pension Plan are set to be modified in 2023. The revised calculations are derived from a legislated CPP formula, which is based on the average growth rate of salaries and weekly wages across Canada.
In 2023, the maximum pensionable earnings under the CPP will increase to $66,600, a rise from $64,900 in 2022. However, the basic exemption amount will remain unchanged at $3,500 for 2023.
Adjustments have also been made to the CPP contribution rates. The contribution rates for both employees and employers have been increased to 5.95% (a rise from 5.70% in 2022), resulting in a maximum contribution of $3,754.45.
For self-employed individuals, the contribution rate will be 11.90% in 2023 (an increase from 11.40% in 2022), leading to a maximum contribution of $7,508.90.
6. RRSP dollar limit increase
The dollar limit for contributing to registered retirement savings plans (RRSPs) has increased for the 2022 tax year. The new limit is $29,210, up from $27,830 in 2021. It’s important to note that your individual contribution limit remains capped at 18% of your total earned income.
7. Repayment of COVID-19 Benefits
During the pandemic, the Government of Canada extended financial aid in the form of various COVID-19 benefits, including:
- 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)
Individuals who received these COVID-19 benefits in 2022 will receive a T4A slip containing all the necessary information for their tax return.
It’s important to note that individuals earning over $38,000 may be required to repay a portion or the entire amount of the benefits received. Failure to repay may result in the Canada Revenue Agency (CRA) withholding future payments, including tax refunds and GST/HST credits. If you are unable to make full repayment, the CRA may offer assistance in setting up a payment plan.
Essential Tips for Filing Taxes in Canada
Filing taxes is a requirement for most Canadian citizens, as mandated by the Canada Revenue Agency. While there are a few exceptions, if you earn income in Canada, even if you reside in another country, you will likely have to pay Canadian taxes.
The method through which you earn money can significantly impact the tax payment process. Self-employed individuals have different tax obligations compared to traditionally-employed individuals. Similarly, Canadian non-residents have distinct tax filing requirements compared to Canadian residents.
To navigate the tax filing process accurately, you can utilize online tax programs that provide step-by-step guidance. For complex situations, it may be beneficial to seek the assistance of a professional accountant.
Regardless of the method you choose to file your taxes, there are several important rules to keep in mind:
- File your income tax return on time to avoid penalties. The deadline for most individuals is April 30, 2023.
- Ensure you claim any tax credits you are eligible for.
- Take advantage of any tax deductions you qualify for.
- If possible, maximize your contributions to your Registered Retirement Savings Plan (RRSP), but be careful not to exceed the allowable limit.
- Similarly, if feasible, maximize your contributions to your Tax-Free Savings Account (TFSA), while staying within the contribution limits.
By adhering to these guidelines, you can effectively fulfill your tax obligations and optimize your financial situation.
