Hannah Logan
Beth Buczynski
The rules that govern how much income tax you’ll pay, as well as the tax credits and deductions you may be able to claim, are adjusted on a regular basis.
Here are seven changes to be aware of in the year ahead.
1. New federal tax brackets
As inflation has remained high over the past year, the federal government has adjusted the tax brackets again for the 2023 tax year. Each of the brackets has seen an increase from the 2022 thresholds so taxpayers will be paying a lower amount on more of their annual income.
In 2023:
- Up to $53,359 of income will be taxed at 15%.
- Income between $53,359-$106,716 will be taxed at 20.5%.
- Income between $106,717 and $165,430 will be taxed at 26%.
- Income between $165,430 and $235,675 will be taxed at 29%.
- Any income above $235,675 will be taxed at 33%.
Note that these are the federal tax brackets for 2023. There are also provincial tax brackets to be aware of.
2. New alternative minimum tax rate
The alternative minimum tax was designed to ensure that high-income individuals still pay a minimum amount of tax, even in situations in which their income is derived from sources that are subject to tax exemptions, or they benefit from credits, deductions, or even preferential treatment.
Currently, the AMT is applied at a 15% rate with a $40,000 exemption. Proposed changes from the 2023 budget will increase the rate to 20.5% with a $173,000 exemption. If finalized, the new AMT rate will go into effect on January 1, 2024, and apply to future taxation years.
3. No more flat-rate method for home office deductions
In response to the COVID-19 pandemic, the Government of Canada established a flat-rate method to make it easier for remote workers to claim home office tax deductions in the 2020, 2021 and 2022 tax years.
According to a December press release from the Canada Revenue Agency, the flat rate method does not apply to 2023 and beyond. If you work from home, and want to deduct home office expenses on your taxes, you’ll need to use the detailed method, which requires additional documentation.
4. EI premium rate hike
On January 2, 2024, the employment insurance premium rate will increase. The EI premium rate is set every year by the Canada Employment Insurance Commission according to a 7-year forecast break-even rate. For 2024 the EI premium rate has been set to $1.66 per $100 of earnings for workers, up from $1.63, and $2.32 per $100 of earnings for employers, up from $2.28.
The EI rate increase has been described as a disappointment by the Canadian Federation of Independent Business, which claims it will places an extra financial burden on business and workers. The hike will “further drive up the cost of doing business for Canada’s small businesses while shrinking the paycheques of Canadian workers,” CFIB president Dan Kelly said in a statement.
5. Basic Personal Amount increase
The basic personal amount (BPA) is the amount of income an individual in Canada can earn without having to pay federal income tax.
Back in 2019, the Government of Canada announced that it would increase the federal BPA annually until it reached $15,000 for 2023. After 2023, the BPA is set to increase based on inflation. As such, the federal BPA for 2024 is $15,705. So, if your annual income is equal to or less than this amount, you will not be taxed.
High income earners will not get the full increased BPA. There is an income test and the enhancement will be reduced for individuals in higher tax brackets. Taxpayers in the top bracket will get the old BPA indexed to inflation which is $14,156 for 2024.
Keep in mind, there are also provincial BPAs that vary by province or territory.
6. RRSP dollar limit increase
Registered retirement savings plan contribution limits increased to $30,780 for the 2023 tax year — an increase of $1,570 from last year. Keep in mind that your individual RRSP contribution level is still capped at 18% of your entire income, and you’ll penalized if you go over these limits.
7. TFSA dollar limit increase
Tax-free savings account contribution limits have increased again, from $6,500 in 2023 to $7,000 in 2024. You can start contributing to a TFSA as soon as you turn 18 years old and can carry forward any unused room from previous years. That means if you start to contribute to a TFSA for the first time this year, you have $88,000 of space available. Keep in mind that like with an RRSP, you will be penalized for over-contributing.
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