With the new year upon us, it’s a good time to review the major personal income tax changes for 2023 — especially since many of them could help you save money. Here’s a rundown of the adjusted tax figures, as well as some new tax claims and rules taking effect this year.
Income tax brackets: Adjustments for inflation
The Canada Revenue Agency (CRA) uses the inflation rate, as reported through the Consumer Price Index, to adjust personal income tax and benefit amounts each year. So, with inflation rates that soared in 2022 to levels not seen in decades, the federal tax brackets for 2023 are increasing significantly — by 6.3% — compared to previous years (2.4% in 2022, and just 1.0% in 2020).
This is a good thing for your pocketbook, since it means you can earn more money before you need to pay a higher rate of taxes on those additional earnings.
The federal tax brackets for 2023 are:
| Taxable income | Tax rate |
|---|---|
| Up to $53,359 | 15% |
| From $53,359 to $106,717 | 20.5% |
| From $106,717 to $165,430 | 26% |
| From $165,430 to $235,675 | 29% |
| More than $235,675 | 33% |
Note that provincial tax brackets are also adjusted annually for inflation, but may or may not use the same CPI factor of 6.3%.
Basic Personal Amount (BPA)
The BPA is the amount of annual income you can earn before you must pay any federal taxes. Since 2019, this amount has been tiered. So, if your 2023 net income is in the first three tax brackets (or less than $165,430), your basic personal amount is $15,000. If your 2023 net income is in the highest tax bracket ($235,675 or more), your basic personal amount is $13,521. Incomes in the fourth tax bracket have a BPA that’s adjusted to somewhere in-between those two numbers.
Either way, you can claim a non-refundable tax credit equal to 15% of your BPA, which comes off the taxes you owe.
Canada Pension Plan (CPP) contributions
When you pay into the CPP, your contributions are based on a percentage of your income, up to the yearly maximum pensionable earnings limit (YMPE). For 2023, the CPP contribution rate is 5.95% and the YMPE is $66,600, which works out to a maximum annual contribution of $3,754.45 each by the employer and employee. If you are self-employed, you must pay both portions for a total maximum contribution of $7,508.90. (Note that the Quebec Pension Plan has the same YMPE, but the contribution rate is 6.4%.)
Employment Insurance (EI) premiums
EI premiums are also calculated as a percentage of your annual income, up to a maximum, which is $61,500 in 2023. With a rate of 1.63% (1.27% in Quebec), that means the most you would pay in EI premiums this year is $1,002.45 (or $781.05 in Quebec).
Tax-Free Savings Account (TFSA)
You get $6,500 in new TFSA contribution room in 2023, up from $6,000 in 2022. Any unused contribution room you have from previous years can be carried over, and the cumulative limit for those who have been eligible Canadians aged 18 or older since 2009 is $88,000. As the name implies, any interest or investment income that you earn within a TFSA is not taxed, and neither are TFSA withdrawals.
Registered Retirement Savings Plan (RRSP)
Each year, you get new RRSP contribution room equal to 18% of your earned income, up to an annual maximum. In 2023, the maximum amount is $30,780, which means you must have earned at least $171,000 in 2022 to hit that limit. The maximum amount of new RRSP contribution room you can get on your 2023 earnings is $31,560 (or 18% of $175,333 in maximum annual earnings).
Old Age Security (OAS)
If you collect OAS, you must pay back some or all of the benefit when your total annual income is too high. In 2023, your OAS will be reduced (starting in July) through a recovery tax if your 2022 income was above $81,761. The 2023 earnings threshold for OAS clawbacks starting in July 2024 is $86,912.
Tax-Free First Home Savings Account (FHSA)
If you’re planning to buy your first home sometime in the future, this new savings plan launching in 2023 is for you. Once you open an FHSA, you can contribute as much as $8,000 a year, up to a lifetime maximum of up to $40,000. Your contributions are tax-deductible (like RRSP contributions), and your investment earnings and withdrawals are tax-free — so long as you use the money to buy your first home. If you don’t buy a home within 15 years, you must close the account and transfer the funds to your RRSP (or RRIF), or withdraw the money as taxable income. Note that you can use the FHSA in combination with the RRSP Home Buyers’ Plan, if you like.
Multigenerational Home Renovation Tax Credit
This new tax non-refundable credit, which takes effect Jan. 1, 2023, is for homeowners who construct a secondary suite for an eligible family member (a senior or an adult with a disability). The credit will reduce taxes owing by up to $7,500, calculated as 15% of eligible expenses (up to $50,000).
Flipped Resident Property rules
If you sell a primary residence in Canada after Jan. 1, 2023, and you’ve owned that home for less than 12 months, you won’t be eligible for the capital gains exemption that normally applies. In other words, if you sell the home at a profit, you’ll have to pay capital gains taxes on those proceeds. There will be certain exceptions, such as situations where there’s a death or divorce, since this measure is meant to target investors who flip houses for profit.
Climate Action Incentive Payment (CAIP)
These quarterly payments, already available to residents of Alberta, Saskatchewan, Manitoba and Ontario, will start being offered to those in Newfoundland and Labrador, Nova Scotia, and Prince Edward Island starting in July 2023. To be eligible for the CAIP, which helps individuals and families offset the cost of federal pollution pricing, you must be 19 or older (or have/previously had a spouse or child that you live with). There is no application process for 2023 payments, other than filing a 2022 income tax return.
We suggest that you talk to a tax professional to ensure you’re taking advantage of all the tax benefits available to you. As well, an MD Advisor* can help you plan now so you can be confident in your financial future.
*MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.
The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice nor is it intended to replace the advice of independent tax, accounting or legal professionals.
