Staying abreast of tax changes every year helps you minimize your taxes and avoid tax penalties. For the 2022 tax year and 2023, the Canadian government has made a couple of changes, which can impact you as a taxpayer.
Inflation rates have been significantly high in the past year, and most tax changes related to net income, deduction limits, contribution rooms, tax brackets, etc., have been influenced by these rising inflation rates.
To account for the increase in inflation, the Canada Revenue Agency has applied a 6.3% indexation increase to most income tax limits.
Here are some important tax changes you should be aware of in 2023.
Federal Tax Brackets
The federal tax brackets have increased, and this is what they are compared to the 2022 rates.
|2023 Taxable Income||2022 Taxable Income||Federal Tax Rate|
|$0 to $53,359||$0 to $50,197||15%|
|$53,359.01 to $106,717||$50,197.01 to $100,392||20.5%|
|$106,717.01 to $165,430||$100,392.01 to $155,625||26%|
|$165,430.01 to $235,675||$155,625.01 to $221,708||29%|
|Over $235,675||Over $221,708||33%|
Contribution limits for registered accounts have also increased to account for inflation. This is how they impact your contributions in 2023.
The contribution limit for TFSAs has increased from $6,000 to $6,500. This allows you to save and invest more money the Canada Revenue Agency will not tax.
If you contribute to a retirement savings plan through your financial institution or through an employer’s plan, the annual limit in 2023 has increased from $29,210 to $30,780. However, you should note that your overall RRSP deduction limit is determined by 18% of your net income and other pension adjustments.
You can log in to your CRA account to confirm your RRSP deduction limit.
The maximum pensionable earnings (YMPE) for 2023 has also increased to $66,600, up from $64,900 in 2022.
The FHSA is a new account created for Canadian residents to improve home affordability. Starting in April 2023, you can save up to $8,000 annually and $40,000 in your lifetime to acquire your first home. This account has tax advantage similarities to the TFSA and RRSP. Your contributions are tax-deductible, and your investment income is not taxable.
You must adhere to the rules of the FHSA to maximize its tax benefits.
Tax Credits and Deductions
The First-time home buyers’ non-refundable tax credit limit is increasing from $750 to $1,500. This 50 percent increase is due to the CRA increasing the claim amount from $5,000 to $10,000 for qualifying homes purchased in 2022.
This non-refundable tax credit that allows Canadians to claim eligible home renovation costs for enhancing a property to aid qualifying individuals’ accessibility, mobility, or functionality within the eligible property is increasing from $1,500 to $3,000. Eligible taxpayers can claim up to $20,000 in eligible home accessibility expenses from 2022. Previously, Canadians could only claim up to $10,000.
If you have shares in a qualified small business corporation or qualified farm or fishing property, the exemption limit has increased from $913,630 to $971,190. Since the CRA taxes only half of capital gains, the deduction limit increase is from $456,815 to $485,595.
For the 2022 tax year and subsequent tax years, eligible tradespeople and apprentices in the construction industry can claim up to $4,000 per year to cover eligible temporary relocation expenses. If you are eligible for the labour mobility tax deduction, note that the annual maximum claim amount for a particular relocation is capped by 50 percent of your construction employment income at the eligible temporary work location.
The CRA created two new capital cost allowance (CCA) classes for zero-emission vehicles applicable from March 18, 2019, until 2028.
The first is Class 54, with a 30% CCA rate. This class applies to motor vehicles and passenger vehicles, excluding taxicabs and automobiles used for lease and rent.
Under this class, certain eligible vehicles may qualify for a higher deduction, up to a maximum of 100%.
The second is Class 55 for automobiles for lease or rent and taxicabs with an applicable CCA rate of 40%. Similar to Class 54, certain eligible vehicles may also qualify for a higher deduction, up to a maximum of 100%.
From 2022 onwards, the CRA has expanded the expenses you can claim under the Medical Expense Tax Credit (METC) for Surrogacy. Eligible expenses can now include costs to obtain donor sperm or ova for the conception of a child through fertility clinics and donor banks in Canada. Eligible expenses cover the individual, their spouse, common-law partner, or a surrogate.
Self-employed taxpayers, including partnerships, can claim a refundable air quality improvement tax credit. This tax credit equals 25% of your total 2022 ventilation expenses incurred for the purpose of improving ventilation or air quality at your business location.
Tax Filing Deadlines
The annual tax filing deadline is April 30. However, if this date falls on a weekend or public holiday, the new deadline will be the following business day. For 2022 returns, April 30 is a Sunday; therefore, the deadline is May 1st, 2023.
For self-employed individuals, the tax filing deadline is June 15, 2023.