Key Tax Changes Canadians Should Know for 2023
As Canadians gear up for the tax season, it's crucial to be aware of the significant changes impacting the 2023 tax year. From penalties to pension plan adjustments, here are nine essential updates to consider when filing your taxes:
Penalty Increase for Unpaid Taxes:
Commencing in 2024, late tax payments will incur a penalty of 10% of the unpaid tax at the due date, plus an additional 2% for each complete month of delay, up to 20 months. Timely filing and payments are key to avoiding escalating costs.
Conclusion of COVID-19 Benefits:
COVID-19-related benefits, such as the $500 work-from-home expense deduction and the Canada Worker Lockdown Benefit, ceased after the 2022 tax year and are not applicable for 2023 taxes. Additionally, the Ontario Staycation Tax Credit, available only for the 2022 tax year, is not extended to 2023.
Introduction of Grocery Rebate:
A new Grocery Rebate has been introduced to assist eligible Canadians with rising food costs. If eligible for the GST/HST credit in 2021, taxpayers qualify for this rebate, which equals double the amount received in January 2023. Eligible taxpayers who filed in 2022 received the rebate in July 2023.
Streamlined Disability Tax Credit Application:
The CRA has simplified the Disability Tax Credit application process by enabling digital completion through My CRA Account. This eliminates the need for physical forms, making it easier for individuals and medical practitioners.
Increase in Basic Personal Amount:
The government raised the Basic Personal Amount to $15,000 for the 2023 tax year, providing a modest boost to taxpayers' returns. This upward adjustment aligns with the government's ongoing policy to gradually increase this amount.
Adjusted Tax Brackets for Inflation:
To preserve purchasing power amid rising prices, tax brackets for 2023 have been adjusted. This adjustment may result in individuals transitioning into lower tax brackets, potentially reducing their tax liabilities.
Raised Limits for TFSA and RRSP Contributions:
The TFSA contribution limit has been raised to $7,000 for 2023, with the cumulative limit now reaching $95,000 for eligible individuals. Similarly, the RRSP annual dollar limit for 2023 is $30,780, based on 18% of the previous year's earned income.
Revised OAS Limitations:
For the 2023 tax year, OAS amounts are subject to reduction or cancellation based on taxable income thresholds. Those with taxable incomes exceeding $81,761 may experience OAS repayment requirements, while incomes surpassing $134,626 may result in no OAS payments. Seniors aged 75 and above received a 10% increase in OAS pensions as of July 2022, per the CRA's 2022 Affordability Plan.
Increased CPP Contributions:
CPP and QPP contributions have risen by 6.5% for 2023, with a maximum pensionable earnings limit of $66,600. Additionally, the first earnings ceiling for CPP increased to $68,500 for 2024, with a subsequent ceiling at $73,200, necessitating additional contributions for eligible earners.
These key tax changes underscore the importance of staying informed to optimize your financial planning and tax obligations in the upcoming year.