5 Big Tax Changes for 2023 – What You Need to Know for the New Year
Sam Ewing says it humorously well…
“Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.”
Daily living is now more expensive than ever. We see it on our grocery store receipt, at the pumps on our daily commute, with the sale of the house down the street, and on the purchase of our new car (if you're lucky enough to snag one without waiting ten months) – and the list goes on. It’s caused you to try to save a buck here, there, and everywhere.
To assist with the rise in inflation (and to match the rising costs), the federal government has introduced several tax changes for 2023. These include an increase in the Basic Personal Amount, an Income Tax Bracket shift, Canada Pension Plan increases, Tax-Free Savings Account limit increases, and the introduction of new programs such as the Tax-Free First Home Savings Account.
Although these changes are minimal, we’ll take what we can get at this point because every dollar counts. Let’s dive into these tax changes for 2023 so that you have the information you need to keep more money in your pocket for the new year.
What Are the 5 Big Tax Changes for 2023?
Although there are many more changes, these are the five we felt you should know. Please consult with a professional for more information on the tax changes that affect your specific situation. Now, let’s dive in! The five big tax changes for 2023 include:
1. Increase in Basic Personal Amount (BPA)
The Basic Personal Amount (BPA) is a non-refundable tax credit that all individuals can claim. Individuals with taxable income below the BPA get a full reduction from federal income tax. Individuals with taxable income above the BPA get a partial reduction.
In 2020, the CRA announced a gradual increase in the BPA to a maximum of $15,000 by 2023, up from $14,398 in 2022, which will further lower your tax bill.
2. Income Tax Bracket Shift
The income tax bracket thresholds have changed significantly for 2023 and will assist in putting money back in your pocket this year. The tax bracket threshold changes are as follows:
Taxable income where the 20.5% bracket begins
Taxable income where the 26% bracket begins
Taxable income where the 29% bracket begins
Taxable income where the 33% bracket begins
This means that Canadians that make a similar salary in 2023 will find that they’re paying less tax than they will pay for the 2022 tax year.
3. Canada Pension Plan (CPP) Contribution Amount Increase
The maximum pensionable earnings under the CPP will be $66,600 for 2023, up from $64,900 in 2022. The increase results from a CPP-legislated formula that looks at Canada's growth in wages and salaries. The basic exemption amount remains at $3,500.00. The maximum employer and employee contribution rates will be $3,754.45 each. For self-employed individuals, the maximum contribution will be $7,508.90.
4. Tax-Free Savings Account (TFSA) Contribution Increase
If you’re looking to take advantage of your TFSA Contribution room in 2023 – you’re in luck! The TFSA contribution limit has been upped by $500.00 to $6,500.00 for 2023. The TFSA contribution limit was capped at $6,000.00 from 2020-2022, so make sure to take advantage of this extra room for savings this year!
5. Tax-Free First Home Savings Account (FHSA)
Still haven’t been able to buy your first home? This is for you!
In the 2022 federal budget, the government introduced the Tax-Free First Home Savings Account (FHSA), which is subject to change, dependent on legislation. It is slated to be introduced in 2023 and aims to tackle the current housing crisis and rising rental rates in Canada.
Here’s How it Will Work
If introduced, this account would give first-time homebuyers the ability to save $40,000 (up to $8,000 annually) on a tax-free basis. This account would be similar to a Registered Retirement Savings Plan (RRSP), wherein the contributions would be tax-deductible. The withdrawal for purchasing a new home (which would include any investment income gained) would be non-taxable, similar to a Tax-Free Savings Account (TFSA).
To qualify, an individual must be at least 18 years of age and a first-time home buyer. Any savings not used to purchase a new home in this account could be transferred to an RRSP or Registered Retirement Income Fund (RRIF).
FHSA and the Home Buyers’ Plan
It’s important to note that under the current rules, you would not be permitted to make both an FHSA withdrawal and a Home Buyers’ Plan (HBP) withdrawal with respect to the same home. In other words, if you intend to withdraw money from your RRSP to purchase a new home, you cannot also withdraw from your FHSA account with respect to the same property purchase.
Save Money Where You Can
Although the tax changes for 2023 are minimal, every dollar saved counts in a world where rising costs are at the forefront of our daily minds. Save as much as possible during this challenging time by cutting costs at grocery stores, pumps, and on extra-curricular activities.
Take advantage of the government tax savings on income tax bracket changes, TFSA contribution limit increases, and the FHSA (if it applies), and leave more money in your pocket this year.
Contact us today to learn about the tax savings options that apply to your particular situation so that you can keep more money in your pocket in the new year!