Tax Tips and Planning
The rules are always changing. Here are some tax tips that will help save you money.
2023 Tax Information and Reminders
2023 TFSA limit is $6,500
The Tax-Free Savings Account (TFSA) limit was $6,000 for 2022, 2021, 2020 and 2019, $5,500 for 2018, 2017 and 2016, $10,000 for 2015, $5,500 for 2014 and 2013. For 2009 to 2012, the limit was $5,000. The total room available in 2023 for someone who has never contributed and has been eligible for the TFSA since its introduction in 2009 is $88,000.
Contributions can be made by Canadian residents aged 18 or over. Any unused contribution room can be carried forward. There is no lifetime limit to the amount of the contributions. If a person has contribution room, but no funds to contribute, he or she may contribute funds given to them by their spouse or common-law partner, with no attribution of income to the spouse or common-law partner. Note that a withdrawal in any year does not increase the TFSA room until the following calendar year. If you are thinking of making a withdrawal close to year end, make sure it is done by December 31 so you can have the withdrawal amount added back to the TFSA room sooner.
2023 RRSP Limit
The RRSP contribution limit is $30,780 in 2023 ($29,210 in 2022). The limit will increase to $31,560 in 2024. If you or your employer do not contribute to a pension plan, your 2023 “earned income” for RRSP purposes must be at least $175,334 to create RRSP contribution room of $31,560 in 2024. Please see the news release.
2023 Employment Insurance Rates
Employment Insurance (EI) rates for 2023 have increased to 1.63% of earnings for employees. The maximum annual premium increased to $1,002.45 (from $952.74 in 2022). The rate for employers is 1.4 times the employee rate or 2.282%. The maximum insurable earnings for 2023 increases to $61,500 from $560,300 in 2022. Please see CRA’s EI premium rates and maximums.
2023 Canada Pension Plan Rates
The maximum pensionable earnings under the Canada Pension Plan (CPP) for 2023 will be $66,600 – up from $64,900 in 2022. Contributors who earn more than $66,600 in 2023 are not required or permitted to make additional contributions to the CPP.
The basic exemption amount for 2023 remains at $3,500. Individuals who earn less than that amount do not need to contribute to the CPP.
The employee and employer contribution rates for 2023 have increased to 5.95% from 5.7% in 2022, and the self-employed contribution rate will increase to 11.9%.
The maximum employer and employee contribution to the plan for 2023 will be $3,754.45 and the maximum self-employed contribution will be $7,508.90. The maximums in 2022 were $3,499.80 and $6999.60 respectively.
Canada Pension Plan Changes for Persons Between Ages 60 and 70
Beginning in 2012, employers must withhold and remit CPP on wages paid to employees between ages 60 and 70, even if the employee is collecting CPP benefits. If the employee is between 65 and 70, he or she may file an election to opt out of paying CPP. These rules also apply to self-employed individuals. In order to avoid paying CPP, the election must be filed with CRA to take effect on the first of the following month. There are several other changes related to CPP benefits. Please contact us for more information.
Employer Health Tax
As outlined in the 2020 Ontario Budget, the EHT exemption will remain at 1,000,000. The next scheduled adjustment to the exemption for inflation has been moved to January 1, 2029. For more information, see the Ontario Ministry of Finance website.
Accelerated Capital Cost Allowance (CCA)
Accelerated CCA is available on additions from November 21, 2018 to December 31, 2027. Prior to the rule change, the “half-year rule” allowed half a year of capital cost allowance in the year of acquisition. Now, for most assets, the usual half year of CCA available in the year of acquisition will be tripled for acquisitions to December 31, 2023. For example, a Class 10 vehicle which is normally subject to a 15% CCA claim in the first year would now be allowed a 45% CCA claim. For acquisitions in calendar years 2024 to 2027, the usual half year of CCA will effectively be doubled rather than tripled. After the acquisition year, CCA will return to the normal rate on the remaining pool in the CCA class.
For 2023 federal tax purposes, the tuition credit is available.
Climate Action Incentive Payment
Prior to 2021 the climate action incentive (CAI) was a refundable credit which consisted of a basic amount and a supplement for residents of small and rural communities. The basic amount was $300 and the spouse or common-law partner amount was $150 and $75 for each qualified dependant. However, for 2022 the CAI will be paid as a quarterly benefit starting in July 2022. You don’t need to apply to receive the payment for the CAI. You need to file a tax return. If you have a spouse or common-law partner, only one of you can get the credit for the family. The credit will be paid to the spouse or common-law partner whose tax return is assessed first. To claim the rural supplement you must complete Schedual 14 and attach it to your income tax return. For more information, see CRA’s information on the climate action incentive.
Capital Gains Exemption
The lifetime capital gains exemption for capital gains on qualified small business corporation shares has increased to $971,190 in 2023 from $913,630 in 2022. The lifetime capital gains exemption for capital gains on qualified farm property is $1,000,000 for 2023 and 2022. For more information, see CRA’s indexation adjustment for personal income tax and benefit amounts.
Prescribed Interest Rates
The prescribed rates for the first quarter of 2023 are as follows:
- The interest rate charged on overdue taxes, Canada Pension Plan contributions, and employment insurance premiums will be 8%.
- The interest rate to be paid on corporate taxpayer overpayments will be 4%.
- The interest rate to be paid on non-corporate taxpayer overpayments will be 6%.
- The interest rate used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans will be 4%.
- The interest rate for corporate taxpayers’ pertinent loans or indebtedness will be 8%.
For more information, see CRA’s website on prescribed interest rates.
2023 What are the Automobile Limits?
|Limit on cost of vehicle for capital cost allowance purposes||$36,000.00*||$34,000.00*|
|Limit on deductible monthly lease expense||$950.00*||$900.00*|
|Maximum allowable monthly interest deductions in respect of amounts borrowed to purchase an automobile -based on year of purchase||$300.00||$300.00|
|Deduction limit for tax-exempt allowances paid by employers to employees
-on first 5,000 km
-for each additional km
|Benefit from employer-paid automobile operating expenses based on personal kilometers driven
-rate for employees of automobile dealers
* plus GST/HST
See the Department of Finance News Release.
Year End Tax Planning
- Consider paying reasonable salaries to family members before year end. Reasonable salaries can be deducted by you and taxable to them at possibly lower rates.
- Businesses should purchase capital assets before year end. Assets purchased and in use before the business year end are eligible for one half of the usual capital cost allowance rate.
- Owner-managers should consider their salary/dividend mix from their corporation. If you have drawn funds from your corporation throughout the year, you should determine whether these amounts should be characterized as salary or dividends before the year end. Ritchie Shortt & Tully LLP can help you with this decision.
- Consider gifting funds or making interest-free loans to your spouse or an adult child to contribute to the Tax Free Savings Account.
- Consider selling investments with accrued losses before the end of the year to offset any gains you have had during the year. Capital losses in excess of gains can be carried back three years and forward indefinitely.
- Contribute to your RRSP by March 1, 2023 to make the contribution deductible for 2022. Also remember to make your required Home Buyer’s repayment by March 1, 2023.
- Charitable donations, medical expenses, political donations, child care expenses, investment counsel fees and professional dues should be paid by December 31 to be creditable or deductible in the previous calendar year.
- Contribute to Registered Education Savings Plans for your children by December 31. Rather than an annual RESP contribution limit there is now a lifetime contribution limit of $50,000. When you contribute money to any RESP, the federal government will deposit an additional amount – the Canada Education Savings Grant (CESG) – equal to 20% of your contribution up to certain limits. The maximum CESG each year is $500 (20% x $2,500 contribution). The lifetime CESG limit is $7,200.
- Direct Deposit – Canada Revenue Agency is switching to direct deposit for all payments that it issues. We urge you to set up direct deposit at this time. This can be done online through “My Account” (if you are registered), by phone (call 1-800-959-8281), by completing and mailing the Direct Deposit Enrolment Form, or by providing us with a void cheque (we will submit this information to CRA when we electronically file your return).
CRA now has a GST Registry on their website. The GST/HST Registry lets you validate the GST/HST number of a business, which helps to ensure that claims submitted for input tax credits only include GST/HST charged by suppliers who are registered for GST/HST. To get information to validate the GST/HST number of a business, you have to enter in the space provided the business name, the GST/HST number, and the date of the transaction in question. Access the registry.