Have you been putting off filing your taxes for 2023? Don’t worry, you’re not alone, and the good news is that there is still time!
The deadline for most Canadians to file their 2023 tax returns and pay any amounts owing is April 30, 2024. Those who are self-employed have until June 15, 2024, to file their 2023 tax return.
With tax season well underway, we’re here to help you understand the latest changes that may impact you when filing your return. Many new changes have been put into effect for the 2023 tax year, including new deductions and credits that could save you money.
So, what’s different from last year? We’ll walk through the major changes for 2023 filings, why it's important to file your taxes on time, and how doing your taxes can help pay off debt.
Tax Changes
1. COVID-19 Benefits Have Expired
For the 2023 tax season, you can't claim the $500 for COVID work-from-home expenses. The Canada Worker Lockdown Benefit (CWLB), which gave temporary income help during the COVID-19 pandemic, ended in 2022 so you can't claim it on your 2023 taxes either.
2. TFSA and RRSP Limits Have Increased
The Tax-Free Savings Account (TFSA) contribution limit has increased to $7,000 for 2023. With this year’s limit increase, your total contribution room is now up to $95,000 if you have qualified for the TFSA every year since its inception in 2009.
The Registered Retirement Savings Plan (RRSP) annual dollar limit for the 2023 tax year is $30,780, up from $29,210 in 2022. However, it is important to remember your individual contribution limit is still capped at 18% of your earned income in the previous year.
3. New OAS Limit Amounts
Old Age Security (OAS) is a government program designed to provide retired Canadians with a source of income to help support their retirement. However, retirees with income over certain limit amounts might find their OAS amount reduced or even cancelled.
The OAS thresholds for the 2023 tax year are as follows:
- Minimum income recovery threshold: $80,761
- Maximum recovery thresholds for ages 65 to 74: $134,626
- Maximum recovery threshold for ages 75 and older: $137,331.
4. Canadian Pension Plan Maximum Contributions Have Increased
The Canada Pension Plan (CPP) and Québec Pension Plan (QPP) have increased by 6.5% as part of the government’s continued implementation of the CPP enhancement. Earnings and contributions are based on a new calculation taking into account the average growth rate of salaries and weekly wages earned throughout Canada.
The maximum pensionable earnings are $66,600, with a basic exemption of $3,500 for 2023. The employee and employer contribution rates for 2023 are 5.95% (up from 5.7% in 2022) with a maximum contribution of $3,754.45, and the self-employed contribution rate is 11.9% (up from 11.4% in 2022) with a maximum contribution of $7,508.90.
Looking ahead to 2024 filings, the first pensionable earnings ceiling will be $68,500 with the basic exemption remaining the same. A second ceiling became effective January 1, 2024, up to $73,200. Individuals earning above the first and below the second ceiling will be subject to an additional CPP contribution calculated as a percentage of wages. For 2024, employee and employer contribution rates, as well as the contribution rate for self-employed individuals, will remain the same as 2023.
5. New Grocery Rebate
To help ease the burden of rising food costs, the Canadian government introduced a new Grocery Rebate. If you submitted your tax return in 2021 and met the criteria for the GST/HST credit, you would be eligible for the Grocery Rebate. This rebate is equivalent to double the GST/HST credit you received in January 2023. For those who filed their tax returns in 2022, you would have received the payment in July 2023.
6. Disability Tax Credit
The CRA has made the process easier to apply for the Disability Tax Credit by going digital. If applying, you can now complete Part A of the application online. Once issued a reference number, you can provide this to your medical practitioner who can then complete Part B digitally. You no longer need to physically print and bring the forms to your medical practitioner anymore.
7. First Home Savings Account
If you opened a tax-free First Home Savings Account (FHSA) in 2023, you can claim up to $8,000 in contributions made by December 31 as a FHSA deduction.
Introduced on April 1, 2023, the First Home Savings Account combines the characteristics of both TFSAs and RRSPs. Contributions are tax deductible against income when put in, like an RRSP, but are tax free on withdrawal, like a TFSA (assuming the money is used for purchasing a home, or being rolled over into an RRSP). Canadians can contribute up to $8,000 annually, reaching a lifetime maximum of $40,000, to help buy their first home. Contributions are tax-free upon withdrawal, like a TFSA, and tax-deductible against income, similar to RRSP contributions.
What Is The New Tax Increase For 2023 Canada?
In addition to the changes noted above, Canada’s tax brackets are being revised each year. To help Canadians keep up with the cost of inflation, the federal government has adjusted tax brackets for 2023, increasing them slightly from 2022 thresholds. For some, the adjustments may result in paying a lower rate on more income.
The new brackets and tax rates for 2023 are as follows:
- Up to $53,359 of income is taxed at 15%
- Income more than $53,359 to $106,717 is taxed at 20.5%
- Income more than $106,717 to $165,430 is taxed at 26%
- Income more than $165,430 to $235,675 is taxed at 29%
- Above $235,675, income is taxed at 33%.
What Is The Basic Personal Amount for Taxes In Canada 2023?
As part of their policy to continue increasing it over time, the Canadian government has increased the Basic Personal Amount (BPA) to $15,000 for the 2023 tax year. The BPA is a non-refundable credit that can be claimed by anyone who files income taxes in Canada. The credit gives individuals making less than a certain amount a full deduction from income tax, while those who make more than the basic amount receive a partial reduction.
How Filing Your Taxes Impacts Debt
While filing a tax return may bring up feelings of dread — especially if you owe a balance on your return — it is still important to file, especially if you have debt.
Not filing a current tax return can have major financial implications, including penalties, interest charges and/or the temporary loss of some government benefits until the taxes are filed and processed.
Costly Penalties
It is important to file your return and pay any taxes owing by the deadline to avoid costly penalties.
If you owe a balance but file your tax return on time, you will be subject to interest fees starting May 1st until the balance is paid off. The interest rate the CRA charges is based on prescribed interest rates and can vary every three months.
If you have a balance owing and you file late, you will be subject to interest and a late-filing penalty. The late-filing penalty is 5% of your 2023 balance owing, plus an additional 1% for every month it is late, to a maximum of 12 months.
Also new this year, if the CRA charged you a late-filing penalty for 2020, 2021 or 2022 and requested a formal demand for a return, your late-filing penalty for 2023 will be 10% of your balance owing. You will be charged an additional 2% for each full month that you file after the due date, to a maximum of 20 months.
If you can't pay your balance in full, you can work with the CRA to pay off your personal income tax debt (plus interest) over a longer period of time through installments. If you do not have a balance owing on your tax return, penalties and interest do not apply.
Government Benefits
If you’re receiving certain benefits from the federal government, such as the Canada Child Benefit or Old Age Security, filing your return on time can be crucial. If you don’t, these benefits may be paused.
Eligibility for certain government benefits is contingent on the numbers on your tax return. Benefit amounts are also associated with the total income listed on your return. If you fail to file by the deadline, the government will not have numbers to go off of and you risk having your benefits delayed, so it’s important to get it in on time. You also won’t be able to apply for any new benefits, such as the Canadian Dental Care Plan, without filing your 2023 tax return.
Income Records
Beyond the financial repercussions, not filing a current tax return can also impact other aspects of your life. The information on your filed tax return is used to determine:
- Loans, such as student loans, mortgages and lines of credit
- Student grants, as well as certain bursaries and scholarships
- Low-income grants for programs including home repair and heating rebates
If something happened where you suddenly needed a loan or grant, you may not be eligible if you haven’t filed your tax return.
Failing to file your return on time can bring many consequences. If you cannot pay your balance owing by the deadline, you should still file on time to avoid being charged the late-filing penalty. This will save you money and inconvenience in the future.
Income Tax Planning
Knowing the latest changes that may impact your tax return can help you save money and also prioritize financial planning strategies for the year ahead. Understanding the latest tax rules and benefits can assist in creating a plan to get the most out of your money or minimize any negative impacts from the changes, including:
- Understanding what tax bracket you are in so you can set achievable financial goals for the year ahead based on your income. In doing so, you’ll be able to budget accordingly and better manage your debt.
- Contributing to an RRSP each year to lower your taxable income. Definitely take advantage if your employer offers a company RRSP plan with contribution matching, which will help you better save for retirement.
- Taking advantage of home buyer tax perks if you are looking to purchase your first home, such as the First Home Savings Account (FHSA) and the First-Time Home Buyers’ Tax Credit (HBTC).
- Checking your eligibility for both federal and provincial child care benefits if you are a parent.
Return Can Help Pay Down Debt
If you are receiving a refund on your 2023 taxes, consider using it to pay down any debt you may have, such as credit card debt. While you may have the desire to treat yourself to a luxury purchase or even a vacation with what feels like “free money” (it’s actually money you overpaid to the government in 2023), you will profit more in the long term if you spend the funds wisely.
