As many are preparing for tax season, new changes have been put into effect for the 2023 tax year that may have an impact on your situation, including new credits and deductions that you may be eligible for.
To make things simple, we’ve provided a breakdown of how these changes will affect you, and put together 9 of the most important changes you should know about when filing your return in 2023.
- The CRA has increased its unpaid tax penalty to 10%.
- Tax brackets and many contribution amounts and limits have been increased to account for rising living costs and inflation.
- COVID-19 credits, such as the Work-From-Home tax credit along with the Ontario Staycation Credit are no longer valid. If claims weren’t made in TY22, they can’t be deferred to TY23.
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1.Increase in unpaid tax penalty
Beginning in 2024, the penalty is 10% of the unpaid tax when the return was due, plus 2% of this unpaid tax for each complete month that the return is late, up to a maximum of 20 months. The amount owed compounds daily, and the interest comes on top of other penalties for paying late. Filing on time and making payments on time will keep costs down.
2. COVID-19 benefits have expired
For the 2023 tax year, you won’t be able to claim the $500 for the COVID work-from-home expense. The Canada Worker Lockdown Benefit (CWLB) that offered temporary income support during the pandemic also ended during tax year 2022 and cannot be claimed for your 2023 taxes. The Ontario Staycation Tax Credit applied to tax year 2022 alone and has not been extended to 2023.
3. A new grocery rebate was introduced
To provide financial support to eligible Canadians, the government introduced a new Grocery Rebate to help alleviate financial strain due to rising food costs. If you filed a tax return in 2021 and you were eligible for a GST/HST credit at the time, you would qualify for the Grocery Rebate. The value of the rebate is equivalent to double the GST/HST credit amount you received in January 2023. If you filed your tax return in tax year 2022, you would have received the payment in July 2023.
4. Disability Tax Credit
Applying for the Disability Tax Credit has been notoriously a lengthy process. In 2023, the CRA made this process easier by going digital! Now, via My CRA Account, individuals wanting to apply can complete Part A of the application and once issued a reference number, provide this to your qualified medical practitioner who can then complete Part B digitally for you.
There’s no need to print and bring the forms to your medical practitioner anymore.
5. The Basic Personal Amount (BPA) has been increased
As part of their policy to continue increasing it over time the government increased the Basic Personal Amount for the 2023 tax year to $15,000. This means that every Canadian will get a slight boost to their return this year, and it’s likely you can expect another increase next year as well.
6. Tax brackets have shifted to account for inflation
The government has adjusted tax brackets for 2023 to maintain buying power for Canadians as prices of goods continue to slowly increase.
The new federal tax brackets for 2023 are as follows:
- $0 to $53,359 of income (15%)
- More than $53,359 to $106,717 (20.5%)
- More than $106,717 to $165,430(26%)
- More than $165,430 to $235,675 (29%)
- $235,675 and higher (33%)
The adjustment upwards means that Canadians on the edge of a tax bracket might find themselves shifted into a lower bracket this year and pay less taxes because of it.
7. The TFSA and RRSP limits have been increased
The TFSA contribution limit has increased to $7,000 for the year. This means that if you’ve had an account since 2009, were 18 years of age and have been a resident of Canada throughout that period, the cumulative total you can have in your TFSA is now $95,000.
The RRSP annual dollar limit for tax year 2023 is $30,780. Remember that your RRSP contribution limit is capped at 18% of your earned income in the previous year. This means the dollar limit is the maximum amount you can contribute regardless of your income.
8. New OAS limit amounts
The OAS is designed to provide retirees with a source of income to support their retirement. However, if your income is over certain limit amounts, you might find your OAS amount reduced, and even canceled entirely.
For the 2023 tax year, if your taxable income was over $81,761, you would need to repay some of your OAS. Similarly, if your taxable income was over $134,626, you would not have received any OAS payments. Thanks to the CRA’s 2022 Affordability Plan, seniors aged 75 and over received an automatic 10% increase of their Old Age Security pension, as of July 2022.
9. Canada Pension Plan maximum contributions have been increased
The Canada Pension Plan (CPP) and Québec Pension Plan (QPP) have been increased by 6.5%. The maximum pensionable earnings are $66,600, with a basic exemption of $3,500 for 2023. For CPP, the employee and employer maximum contribution is $$3,754.45, while for QPP it is $4,038.40.
Québecers also have the option to increase their Québec Pension Plan premiums, by making extra contributions, to the enhanced plan. The enhancement of the QPP will provide future retirees with an increase in their pension premiums from 25% to 33.33%.
Note that any self-employed individuals must account for both the employer and the employee sides of the contribution. For 2023, their maximum contribution amount for the CPP is $7,508.90 and for the QPP it is $8,076.80.
New for 2024, the first earnings ceiling has increased to $68,500 which will see the 5.95% CPP rate applied. A second ceiling became effective January 1st, 2024, up to $73,200. Individuals earning above the first and below the second ceiling will be subject to an additional CPP contribution.
CPP2 contributions are made by anyone who earns wages above the first earnings ceiling. These are calculated as a percentage of wages above the first earnings ceiling up to the amount of the second earnings ceiling.
- Employees contribute 4% of the amount they earn between the first earnings ceiling and the second earnings ceiling
- Self-employed individuals contribute 8% of the amount they earn between the first earnings ceiling and the second earnings ceiling
If you earn less than the first earnings ceiling, you will not make CPP2 contributions. You will continue to make base and first additional CPP contributions of 5.95% if you are an employee or an employer, or 11.9% if you are self-employed.
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