In 2022, Canadians experienced high inflation as shifts in the global economy began to settle. Canada’s tax brackets are indexed and adjusted to account for inflation.
Any Canadians earning less than $53,359 in taxable income per year (but above the basic personal amount of $15,000) will be subject to the base 15% tax rate.
Every year, Canada incrementally changes the federal income tax brackets to account for inflation. These tax rates, along with other benefits, tax credits, and payments, are indexed to the inflation rate. Since inflation increased dramatically in 2022, the tax brackets saw considerable changes and were increased by 6.3% for 2023.
The basic personal amount is a tax credit that all Canadian taxpayers can claim to help reduce the federal income tax they owe. Federal income tax rates don’t kick in until after the individual has earned more than the basic personal amount.
If you’re in the 29% tax bracket and earn less than $235,675 per year, then you’ll be entitled to claim the full $15,000 basic personal amount.
TFSA contribution room increase
This year, the annual contribution room for tax-free savings accounts is $6,500, up from the $6,000 contribution room in 2022. Those who have been eligible for the TFSA program since 2009 (when it began) now have a total contribution room of $88,000.
2. EI premiums increase
In 2023, Employers Insurance (EI) premiums are increasing for both employees and employers. Employees are now subject to a 1.63% EI premium, and employers are now subject to a 2.28% EI premium.
3. Introduction of First Home Savings Account (FHSA) in 2023
This year, the government is introducing an excellent new initiative to help Canadians save for their new homes. The First Home Savings Account (FHSA) allows your contributions to grow tax-free as you prepare to purchase your first home.