Tax changes that Canadians need to know in 2023

For a lot of new tax filers this season brings a lot of tension and dread. But not anymore. When you are aware of the changes that have been implemented in the taxation system, it becomes easy to navigate it. This article discusses the 9 most important tax changes that Canadians should know of in 2023.

9 tax changes that Canadians need to know in 2023

1. Repaying COVID-19 benefits

If you received COVID-19 benefits from the CRA in 2022, such as the Canada Recovery Benefit (CRB), Canada Sickness Recovery Benefit (CSRB), or Canada Recovery Caregiving Benefit (CRCB), you will be provided with a T4A slip containing the essential information required for your tax return.

If you have obtained the Canada Recovery Benefit (CRB) and your net income, following specific adjustments, surpasses $38,000, there may arise an obligation to reimburse a portion or the total amount of the benefits you obtained in 2022. Those who have returned COVID-19 benefits within the same year have the flexibility to decide in which tax year they want to claim the deduction. You can choose to claim the deduction either in the year you received the benefit or in the year when you made the repayment. It's essential to note that any one-time provincial payments provided to assist with COVID-19 won't be subject to taxation, and there is no necessity to report them as income on your 2022 tax return.

2. You can claim work-from-home expenses

In Canada, you can claim up to $500 for work-from-home expenses as a tax deduction, provided you meet certain eligibility criteria. This measure was introduced by the Canadian government in response to the COVID-19 pandemic, recognizing that many Canadians were required to work from home to comply with public health guidelines. Here's an explanation of how this deduction works.

1. Eligibility: To be eligible for the work-from-home expense deduction, you must meet one of the following criteria –

• You were engaged in remote work for a minimum of 50% of the time for a continuous period of at least four weeks in 2021, in response to the COVID-19 pandemic.
• Your employer required you to work from home

2. Types of Expenses: The $500 deduction is intended to cover various home office expenses incurred while working from home. These expenses may include –

• Office supplies (e.g., pens, paper, ink cartridges)
• Utility bills (e.g., electricity, heating, water) directly related to your home office space
• Rent or mortgage interest if you're claiming the home office expenses deduction based on the simplified method (more on this below)
• Maintenance and repair costs for your home office workspace

3. Simplified Method: The Canada Revenue Agency (CRA) introduced a simplified method for claiming home office expenses. Under this method, you can claim $2 for each day you worked from home, up to a maximum of $500. This method is straightforward and doesn't require you to keep detailed records of specific expenses.

3. TFSA limit has increased

In Canada, TFSA stands for Tax-Free Savings Account. It is a savings and investment account that allows. Canadian residents aged 18 or above have the opportunity to save and invest money in Tax-Free Savings Accounts (TFSAs) without incurring taxes on the income generated within the account, including capital gains and interest. Any income accrued within a TFSA, such as interest, dividends, and capital gains, remains exempt from income taxation. This means that you can grow your savings and investments without incurring taxes on the gains.

The annual TFSA contribution limit has been raised to $6,500 for this year. If you meet the criteria of having had a TFSA account since 2009, being 18 years of age or older, and maintaining Canadian residency during this time, the total cumulative contribution room available for your TFSA has now expanded to reach $81,500.

4. Basic Personal Amount (BPA) has been increased

In the context of Canada's income tax system, the Basic Personal Amount (BPA) is a fundamental component. It represents the minimum level of income that an individual can earn without having to pay federal income tax. The BPA is intended to provide tax relief to lower-income individuals and ensure that they are not taxed on their basic necessities.

The exact value of the Basic Personal Amount can vary from year to year and is subject to change based on government policies and inflation adjustments. It is set by the federal government but is also used as a reference by many provincial and territorial governments when determining their own tax credits and deductions.

As a part of their ongoing policy to progressively raise it until it reaches $15,000 in 2023, the government has elevated the Basic Personal Amount to $14,398 for the 2022 tax year. Consequently, Canadians can anticipate a modest enhancement in their tax refunds this year, with the possibility of further increases in the upcoming year.

5. New OAS limits

OAS stands for Old Age Security, and it is a significant component of Canada's retirement income system. The Old Age Security program is designed to provide financial support to Canadian seniors during their retirement years. Most Canadian residents become eligible to receive Old Age Security benefits at the age of 65. However, you can choose to defer your OAS pension for up to five years, which will result in an increased monthly payment.

In the 2022 tax year, if your taxable income exceeded $81,761, you would be required to reimburse a portion of your OAS benefits. Conversely, if your taxable income surpassed $134,626, you wouldn't have received any OAS payments. A noteworthy development introduced under the CRA's recent Affordability Plan is that seniors aged 75 and above experienced an automatic 10% boost to their Old Age Security pension, starting from July 2022.

6. Shift in tax brackets

In light of the gradual increase in the prices of goods, the government has implemented adjustments to the tax brackets for the year 2022, with the goal of preserving the purchasing power of Canadian citizens. The revised federal tax brackets for 2022 are outlined as follows -

• Income from $0 to $50,197 (tax rate of 15%)
• Income exceeding $50,197 up to $100,392 (tax rate of 20.5%)
• Income exceeding $100,392 up to $155,625 (tax rate of 26%)
• Income exceeding $155,625 up to $221,708 (tax rate of 29%)
• Income of $221,708.01 and above (tax rate of 33%)

This upward adjustment signifies that individuals whose income was teetering on the boundary of a tax bracket may experience a shift into a lower bracket during the current year. As a result of this change, they will face reduced tax liabilities. In essence, this means that they will pay a lower percentage of their income in taxes, which can lead to potential tax savings. This can be especially beneficial for those who were previously on the verge of a higher tax bracket, as they will now enjoy the advantages of a more favorable tax rate, ultimately retaining a larger portion of their earnings.

7. Canada Pension Plans maximum contributions have increased

The Canada Pension Plan (CPP) is a participatory, income-dependent social insurance initiative in Canada. Its purpose is to furnish financial support to individuals and their families in situations such as retirement, disability, or loss of life.

Similar to CPP is Quebec Pension Plan. It is a public pension plan specific to the province of Quebec, Canada. It is similar in many ways to the Canada Pension Plan (CPP), which is in place in the rest of Canada, but there are some differences due to Quebec's unique social programs. Like the CPP, the QPP is a contributory pension plan. Both employees and their employers in Quebec make regular contributions to the plan based on the employee's earnings.

The Canada Pension Plan (CPP) and Québec Pension Plan (QPP) have seen a 2.7% increase. The maximum pensionable earnings for 2022 have been set at $64,900, with a basic exemption of $3,500.  The maximum contributions for CPP are set at $3,039.30 for both workers and their employers, while the cap for QPP contributions stands at $3,315.60. In Quebec, residents have the choice to augment their Quebec Pension Plan benefits by making supplementary contributions to the enhanced plan. This augmentation will lead to future retirees receiving a higher pension benefit, increasing from 25% to 33.33%. It's important to note that self-employed individuals bear the responsibility for both the employer and employee portions of their contributions. In 2022, the maximum contribution amounts for CPP and QPP are $6,078.60 and $6,999.60, respectively, for self-employed individuals.

8. RRSP dollar limit has increased

RRSP stands for Registered Retirement Savings Plan, and it is a tax-advantaged savings and investment account available to Canadian residents. RRSPs are designed to help individuals save for their retirement while providing tax benefits. One of the primary advantages of an RRSP is that contributions made to the account are tax-deductible. This means that the amount you contribute to your RRSP reduces your taxable income for the year in which you make the contribution, potentially lowering your overall tax liability.

In the tax year 2022, the maximum annual contribution limit for your Registered Retirement Savings Plan (RRSP) is set at $29,210. It's important to understand that your RRSP contribution limit is determined based on a formula: you can contribute up to 18% of your earned income from the previous year, up to the dollar limit established by the Canada Revenue Agency (CRA).

In simpler terms, the dollar limit of $29,210 serves as the upper cap on the amount you can contribute to your RRSP, regardless of your income. If your 18% of the previous year's earned income falls below this dollar limit, you can contribute up to the full $29,210, maximizing your RRSP savings potential for the year.

9. Tax credit changes

Numerous modifications have been enacted for tax credits in the 2022 tax year. Here are some of the federal changes –

• Air Quality Improvement Tax Credit: Under this provision, eligible businesses, including sole proprietorships, now have the opportunity to seek a tax credit equivalent to 25% of the costs incurred for qualifying ventilation improvements. The maximum allowable credit, based on a $10,000 expenditure, is set at $2,500. In essence, this tax credit encourages businesses to invest in ventilation upgrades that promote better air quality, and in return, they can receive a credit on a portion of the expenses incurred, up to the specified limit.
• Automobile Income Tax Deduction Limits: Changes have been introduced, including higher Capital Cost Allowance (CCA) ceiling limits for zero-emission and passenger vehicles. Monthly deductible leasing costs have increased by $100, and the per-kilometer rate paid by employers to employees using their personal vehicles for work has gone up by 2 cents per kilometer from the previous year.
• Home Accessibility Tax Credit (HATC): If you are aged 65 or older, qualify for the disability tax credit, and have carried out home modifications to improve accessibility, you can now request a tax credit for expenses associated with enhancing home accessibility, with a potential claim of up to $20,000 in related HATC expenses. This credit is designed to alleviate the financial burden of making necessary home adjustments for individuals who may have mobility challenges due to age or disability, ensuring that they can enjoy a more accessible living environment.
• Labour Mobility Deduction (LMD): This recently introduced deduction is aimed at benefiting tradespeople, apprentices, and those employed in the construction industry. It permits them to claim expenses incurred for meals and lodging while they are away from their usual place of work, engaged in temporary assignments that generate income. The LMD recognizes the unique circumstances of these professionals, who often need to travel or temporarily relocate for work, by allowing them to offset some of the costs associated with their temporary work locations. This deduction acknowledges the need for financial relief for individuals whose work requires mobility and temporary placements.

Changes in tax credits as per specific provinces.

Nova Scotia

• The Children's Sports and Arts Tax Credit is an innovative credit of $500 designed to provide financial assistance for expenses incurred while enrolling children under 19 years old in sports and arts activities throughout the year 2022.
• The Rebate for Fertility Treatments and Surrogacy-Related Medical Expenses is a tax credit that offers a refund equivalent to 40% of the costs associated with fertility treatments and medical expenses related to surrogacy, provided that these treatments are conducted by qualified medical practitioners or clinics in Nova Scotia.

Ontario

• The Ontario Staycation Credit presents a one-time tax benefit to Ontario residents. Eligible individuals can claim 20% of their expenses for accommodations in Ontario, whether it be in a hotel, cottage, or campground during 2022. The credit allows for an individual limit of $1,000 or a family limit of $2,000.
• The Ontario Seniors Care at Home Tax Credit is a refundable tax credit specifically designed to aid seniors in covering eligible medical expenses, including those related to aging at home. This credit is calculated at 25% of qualifying medical expenses, with a maximum limit of $1,500 based on expenses totaling up to $6,000.
• The Seniors' Home Safety Tax Credit is a recently introduced initiative aimed at assisting seniors in enhancing the safety and accessibility of their residences. It provides a 25% credit for eligible expenses, capped at $10,000. This equates to a maximum annual credit of $2,500.