Every year, Canada incrementally changes the federal income tax brackets to account for inflation. These tax rates, along with other benefits, tax credits, and payments, are indexed to the inflation rate.
As inflation rises, the cost of consumer goods typically increases along with wages. Indexing tax brackets to inflation is a good thing, as it reduces the amount of taxes you pay. If tax brackets didn’t change to account for this, then people would be paying a disproportionately high tax rate based on their income.
Here’s a quick look at how the federal government’s income tax brackets and other benefits have changed in 2023.
. Canadian resident trust
. Only holds shares of a qualifying business for the benefit of employee beneficiaries.
. Reasonable distributions to employee beneficiaries based on length of service, remuneration, hours worked.
. Holds a controlling interest in the shares of the qualifying business.
. All or substantially all of the FMV of assets are attributable to an active business carried on in Canada.
. Excludes partnerships.
. Specific requirements pertaining to: governance and trust beneficiaries
. Capital gains reserve extended to 10 years (from 5 years) for transfer to an EOT
. Shareholder loan repayment rule expanded to 15 years ( from one year) where funds used to purchase shares
. EOT’s are exempted from the 21-year deemed disposition rule
Registered Education Savings Plan (RESP)
Increase the amount of Education Assistance Payment withdrawal to:
$8,000 (from $5,000) in the first 13 weeks of F/T enrollment
$4,000 ( from $2,500) per 13-week period of P/T enrollment
Divorce/separated parents permitted to open joint RESP
Effective March 28,2023
Registered Disability Savings Plan (RDSP)
Extension for qualifying family member for an RDSP and plan holder for an adult 18+ whose capacity is in doubt and has no legal representative.
Expanded to include brother and sister (18+) of the beneficiary in addition to parent, spouse, common law partner.
Measure is extended to December 31,2026 (from December 31,2023)
Retirement Compensation Arrangement
Fees or premiums paid for securing/renewing a letter of credit/surety bond are no longer subject to the refundable tax.
Effective for fees/premiums paid on or after March 28,2023
Budget also allows for employers to request a refund of previously remitted refundable taxes in respect of fees paid on retirement benefits after 2023.
An increase to maximum GST credit for January 2023 to double the amount.
Referred to as the Grocery Rebate
Maximum amounts: $153/adult; $81/child; and $81 for the single supplement
Canada Dental Care Plan (CDCP )
Permits CRA to share taxpayer information needed for the CDCP to an official of Employment and Social Development Canada or Health Canada to administer, enforce, and evaluate the CDCP
Dental coverage for family income<$90K; no co-pay for family income<$70K
Deduction for Tradespeople’s Tool Expenses
A deduction of up to $1,000 (from $500) of an amount for the excess of cost of eligible new tools exceeding the Canada Employment Credit ( $1,368)
Limited to the total employment income earned and apprenticeship grants received to acquire the tools.
Effective for 2023 and subsequent taxation years
Underused Housing Tax (UHT) relief
CRA announcement on March 27,2023 for a waiver of penalties and interest for late filed 2022 UHT returns
Provided the UHT returns and taxes owed, if any, are filed and paid by October 31,2023
New Trust Reporting Rules
All trusts required to file T3SCH15” Beneficial Ownership Information of a Trust.”
Form requires Name, DOB, TIN, Country of Residence & Address for each trustee, settlor and beneficiary.
Significant penalties if do not file this form.
Applies for taxation years ending after December 30,2023