Many of the important tax figures have been substantially increased for 2023. Here are some of the significant changes to keep in mind when filing your personal income tax returns in 2023.
Tax brackets for 2023 adjusted to inflation
The federal income tax brackets for 2023 have been indexed to inflation 6.3%.
The new federal brackets are:
zero to $53,359 (15 per cent)
more than $53,359 to $106,717 (20.5 per cent)
more than $106,717 to $165,430 (26 per cent)
more than $165,430 to $235,675 (29 per cent)
above $235,675 (33 per cent)
Each province also has its own set of provincial tax brackets using their respective provincial indexation factors.
Basic personal amount (BPA)
The BPA for 2023 has been set by legislation at $15,000, meaning an individual can earn up to this amount in 2023, before paying any federal income tax.
But higher income earners may not get the full, increased BPA since there is an income test. The enhanced BPA is gradually reduced, on a straight-line basis, for taxpayers with net incomes of more than $165,430 (the bottom of the fourth tax bracket for 2023) until it gets fully phased out when a taxpayer’s income tops $235,675 (the threshold for the top tax bracket in 2023).
Taxpayers in that top bracket who lose the enhanced amount will still get the “old” BPA, indexed to inflation, which is $13,521 for 2023.
CPP (QPP) contributions
The Canada Pension Plan contribution rate for 2023 is 5.95% (6.4% for the Quebec Pension Plan) with maximum contributions by employees and employers set at $3,754.45 ($4,038.40 for QPP) in 2023, based on the new yearly maximum pensionable earnings of $66,600 (with a $3,500 basic exemption.)
Employment insurance premiums are also rising, with a contribution rate for employees of 1.63% (1.27% for Quebec) up to a maximum contribution of $1,002.45 ($781.05 for Quebec) on 2023 maximum insurable earnings of $61,500.
Tax-free savings account (TFSA) limit
The 2023 TFSA contribution limit will increase to $6,500 . The cumulative TFSA limit is now $88,000 for someone who has never contributed to a TFSA and has been a resident of Canada and at least 18 years of age since 2009.
RRSP dollar limit
The RRSP limit for 2023 is $30,780, up from $29,210 in 2022, which is also limited to 18% of your 2022 earned income.
Old Age Security (OAS)
If you receive OAS, the repayment threshold for 2023 is set at $86,912
First Home Savings Accounts (FHSA)
As early as April 1, 2023, this new registered plan gives prospective first-time homebuyers the ability to save $40,000 on a tax-free basis towards the purchase of a first home in Canada.
Contributions to an FHSA will be tax deductible, but withdrawals to purchase a first home, including from any investment income or growth earned in the account, will, like a TFSA, be non-taxable. The new legislation confirms that a first-time homebuyer can use both the FHSA and the existing Home Buyers’ Plan to purchase their first home.
Multigenerational Home Renovation Tax Credit
Jan. 1 also marks the beginning of this new credit, which is equal to 15% of eligible expenses (up to $50,000) incurred for a qualifying renovation that creates a secondary dwelling to permit an eligible person (such as a senior or a person with a disability) to live with a relative.
The new anti-flipping rules for residential real estate are scheduled to come into force on Jan. 1,2023 and are designed to “reduce speculative demand in the marketplace and help to cool excessive price growth.”
The principal residence exemption will not be available on the sale of your home if you’ve owned it for less than 12 months (with certain exceptions). Instead, the gain will be 100-per-cent taxable as business income.