Tax Changes and New Rules That Will Affect Your Finances in 2023

A new year means new goals, opportunities, and tax changes. Rising inflation rates and housing market prices have sparked new tax changes outside of the regular adjustments.

In this article, we will cover the different contribution limit increases, inflation adjustments, credits, and deductions that go into effect to give you an overview of the changes that will impact your finances in 2023.

Contribution Limit Increases

Going into 2023, there will be contribution limit increases on three different fronts:

RRSP

The Registered Retirement Savings Plan, or RRSP, is designed to help Canadians save for retirement. The contribution room is 18% of your earned income. In 2022, the maximum contribution was $29,210. In 2023, this limit has increased to $30,780.

TFSA

The Tax-Free Savings Account, known as TFSA, has also increased the contribution limits. This program is designed to help Canadians save and invest money through tax-free growth. In 2022, the contribution room was $6,000 with a lifetime limit of $81,500. However, in 2023, resident Canadians can now contribute up to $6,500 with a lifetime limit of $88,000.

CPP

The Canada Pension Plan, CPP for short, also saw contribution limit increases. In 2022, CPP was calculated on 5.7% of employee pay with a maximum contribution of $3,499.80. Going into 2023, this percentage was bumped up to 5.95%, and the maximum contribution will be $3,754.45.

Inflation Adjustments

As inflation reached record highs during 2022, a few tax changes had inflation adjustments.

Federal Tax Brackets

Each of the tax brackets was slightly adjusted to account for inflation. Here are some of the notable changes based on the tax rate:

· 15% Bracket – Income threshold increased from $50,197 to $53,359

· 20.5% Bracket – Income threshold increased from $100,392 to $106,717

· 26% Bracket – Income threshold increased from $155,625 to $165,430

· 29.38% Bracket – Income threshold increased from $221,708 to $235,675

· 33% Bracket – Income threshold increased from $221,708+ to $235,675+

Basic Personal Amount

The basic personal amounts also increased. BPA is a tax credit that can be claimed by all Canadians regardless of income. In 2022, the BPA was $14,938. This number was increased to $15,000 for 2023, giving you an extra deduction before your tax is calculated.

Lifetime Capital Gain Exemption

The Lifetime Capital Gains Exemption (LCGE) allows Canadian incorporated small business owners to claim a deduction when selling shares of a corporation that can effectively eliminate the taxes realized on a sale of their business.

The exemption was increased from $913,630 to $971,190 in 2023.

New Credits and Deductions

There were also new credits and deductions introduced into the tax code. Many new items are geared toward combatting high inflation and difficulty in purchasing real estate.

Goods and Service Tax Credit

The Goods and Service Tax Credit aims to offset the financial impact of GST on low-income families. The credit is paid in quarterly installments, and the amount received is dependent on your family size and income level. For the July 2022 through June 2023 quarters, the credit was $467 for single taxpayers and $612 for married taxpayers and parents. The household income must also be below $40,000 in 2022.

The credit is expected to double for the remaining six months of 2023, with the income threshold increasing to $58,500. In addition, this tax credit is pending approval for a lump sum payment near the end of 2023.

First Home Savings Account

The First Home Savings Account is being rolled out in 2023 for individuals trying to save for a home. This account retains tax advantages similar to the TFSA and RRSP. The FHSA has a lifetime contribution limit of $40,000, with a maximum of $8,000 per year. The amounts remitted do qualify for a deduction on your personal tax return. A unique aspect of the FHSA is that you can carry over unused contribution room to future years.

Multigenerational Home Renovation Tax Credit

The Multigenerational Home Renovation Tax Credit is designed to ease the financial burden of renovations. The new credit began on January 1, 2023, and equates to 15% of eligible renovation expenses, up to $50,000. To qualify for this credit, the renovation must create a secondary dwelling for a senior or individual with a disability to live in the house.

Summary

Can you benefit from any of these tax changes? Whether you are looking to save for a new home or have changes in income, understanding the new rules and regulations that impact you is crucial.

Check out our other blog posts for more tax changes, regulations, and rules. Our team at Pivot Strategy CPA is constantly reading up on alterations to the tax code to keep you informed.

Sources

Government of Canada. “Income tax.” Government of Canada, 26 Jan 2023, https://www.canada.ca/en/services/taxes/income-tax.html. Accessed 9 Feb 2023.

The content of this blog is intended to provide a general guide to the subject matter. Professional advice should be sought about your specific circumstances.

By: Kamal Gawri, CPA, CA