Debt Managements

What you need to know

Have you postponed filing your taxes for 2023? Don’t worry, you’re not alone, the good news is there’s still time!

The deadline for most Canadians to file their 2023 tax returns and pay any amounts owed is April 30, 2024. Those who are self-employed have until June 15, 2024 to file their 2023 tax returns.

As tax season begins, we’re here to help you understand the latest changes that may affect you when filing your returns. Several new changes have been implemented for tax year 2023, including new deductions and credits that could save you money.

So, what’s different from last year? We’ll go over the major changes to 2023 filings, why it’s important to file your taxes on time, and how doing your taxes can help pay down debt.

Tax changes

1. Your COVID-19 benefits have expired.

For the 2023 tax season, you can’t claim $500 for work-from-home expenses due to coronavirus. The Canada Workers Benefit (CWLB), which provided temporary income assistance during the COVID-19 pandemic, expired in 2022 so you can’t claim it on your 2023 taxes either.

2. TFSA and RRSP limits have been increased

Tax-Free Savings Account (TFSA) The contribution limit has increased to $7,000 for 2023. With this year’s cap increase, your total contribution room is now up to $95,000 if you’ve qualified for a TFSA every year since its creation in 2009.

Registered Retirement Savings Plan (RRSP) Annual limit in dollars For tax year 2023 it is $30,780, up from $29,210 in 2022. However, it’s important to remember that your individual contribution limit is still set at 18% of your earned income in the previous year.

3. New OAS limit amounts

Old Age Security (OAS) It is a government program designed to provide retired Canadians with a source of income to help support their retirement. However, retirees with income exceeding certain amounts may find that their OAS amount is reduced or even eliminated.

The OAS thresholds for tax year 2023 are as follows:

  • Minimum income recovery: $80,761
  • Maximum recovery thresholds for ages 65 to 74: $134,626
  • Maximum refund for ages 75 and older: $137,331.

4. Canada Pension Plan maximum contributions have increased

The Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) increased by 6.5% as part of the government’s continued implementation of… Strengthening the Cambodian People’s Party. Earnings and contributions are based on a new calculation that takes into account the average growth rate of salaries and weekly wages earned across Canada.

The maximum retirement income is $66,600, with a basic exemption of $3,500 for 2023. 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 to 2024 filings, the first maximum pensionable earnings will be $68,500 with the basic exemption remaining the same. The second cap became effective January 1, 2024, reaching $73,200. Individuals earning above the first ceiling 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 in 2023.

5. New grocery discount

To help ease the burden of rising food costs, the Canadian government has introduced a new law Grocery discount. If you file your tax return in 2021 and meet the criteria for the GST/HST credit, you’ll be eligible for the grocery deduction. 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 of applying for the Disability Tax Credit easier by going digital. If you have applied, you can now complete Part A of the application online. Once the reference number has been issued, you can provide it to your doctor who can then complete Part B digitally. You don’t need to physically print out forms and bring them to your medical professional anymore.

7. First Home Savings Account

If you open it is tax deductible First Home Savings Account (FHSA) In 2023, you can claim up to $8,000 in contributions made by December 31 as an FHSA deduction.

Introduced on April 1, 2023, the First Home Savings Account combines features of both TFSAs and RRSPs. Contributions are income tax deductible when made, like an RRSP, but tax deductible when withdrawn, like a TFSA (assuming the funds are used to purchase a home, or rolled over to an RRSP). Canadians can contribute up to $8,000 annually, for a lifetime maximum of $40,000, to help purchase their first home. Contributions are tax deductible upon withdrawal, like a TFSA, and tax deductible on income, similar to RRSP contributions.

What is the new tax increase for 2023 in Canada?

In addition to the changes mentioned above, Canada’s tax brackets are revised every year. To help Canadians keep up with the cost of inflation, the federal government Revised tax brackets for 2023and increasing them slightly above the 2022 thresholds. For some, the adjustments could 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 over $53,359 to $106,717 is taxed at 20.5%.
  • Income over $106,717 to $165,430 is taxed at 26%.
  • Income over $165,430 to $235,675 is taxed at 29%.
  • Over $235,675, the income is taxed at 33%.

What is the basic personal amount for taxes in Canada 2023?

As part of its policy to continue increasing it over time, the Canadian government has increased Basic Personal Amount (BPA) to $15,000 for tax year 2023. The BPA is a non-refundable credit that anyone filing income taxes in Canada can claim. The credit gives individuals who earn less than a certain amount a full income tax deduction, while those who earn more than the basic amount get a partial reduction.

How does filing taxes affect debt?

While filing a tax return may bring up feelings of dread – especially if you You will owe a balance on your return – It is still important to file, especially if you have debts.

Failure to file a current tax return can have significant financial implications, including penalties, interest charges, and/or temporary loss of certain government benefits until taxes are filed and processed.

Costly penalties

It is important to file your tax return and pay any taxes due 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 charges starting May 1 until the balance is paid. The interest rate on which CRA fees are based Established interest rates It can vary every three months.

If you have an outstanding balance and are late in submitting your application, you will be subject to… Interest and late penalty. The late filing penalty is 5% of your outstanding balance for 2023, plus an additional 1% for each month late, up 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 you request a formal return, the late-filing penalty for 2023 will be 10% of your outstanding balance. You will be charged an additional 2% for each full month you file after the due date, up 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 due on your tax return, penalties and interest will not apply.

Government benefits

If you receive 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 do not, these benefits may be temporarily discontinued.

Eligibility for certain government benefits depends on the numbers on your tax return. Benefit amounts are also tied to the gross income included on your return. If you fail to file by the deadline, the government won’t have numbers to go off of and you’ll risk delaying your benefits, so it’s important to get them on time. You also won’t be able to apply for any new benefits, such as the Canada Dental Plan, without filing your 2023 tax return.

Income records

In addition to the financial ramifications, not filing a current tax return can also affect other aspects of your life. The information on your submitted tax return is used to determine:

  • Loans, such as student loans, mortgages, and lines of credit
  • Student grants, in addition to some grants and scholarships
  • Grants to low-income people for programs including home repair and heating rebates

If something happens where you suddenly need a loan or grant, you may not be eligible if you haven’t filed your tax return.

Failure to file your return on time could result in many consequences. If you cannot pay your outstanding balance by the deadline, you must still file on time to avoid a late filing penalty. This will save you money and hassle in the future.

Income tax planning

Knowing the latest changes that may affect your tax return can help you save money as well as prioritize financial planning strategies for next year. Understanding the latest tax rules and benefits can help you create a plan to get the most out of your money or minimize any negative impacts from the changes, including:

  • Understand your tax bracket so you can set achievable financial goals for next year based on your income. By doing this, you will be able to budget accordingly and manage your debt better.
  • Contribute to an RRSP each year to lower your taxable income. Definitely benefit if your employer offers a company RRSP with contribution matching, which will help you save better for retirement.
  • Take advantage of home buyer tax credits if you’re looking to buy your first home, such as the First Home Savings Account (FHSA) and the First Home Buyer Tax Credit (HBTC).
  • Check your eligibility for federal and provincial child welfare benefits if you are a parent.

Returns can help pay off debt

If you’ll receive a refund on your 2023 taxes, consider using it to pay off any debt you may have, such as credit card debt. Although you may have the desire to treat yourself to luxury goods or even a vacation with what seems like “free money” (which is actually money you overpaid to the government in 2023), you will earn more in the long run if you spend the money. Money wisely.

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