I know that taxes is not one of the most exciting subjects, but no one can escape from taxes, in this case, understanding it is the best that we can do.
I have to start with a disclaimer that we are not tax experts and this text shouldn’t be considered as tax advice. If you need help, please seek a professional that can help you. The goal here is just to update those that are already in Canada with a couple of tax changes that might affect you and of course, give to those that are about to come to Canada a glimpse of the tax system they will have to navigate through when they land in the country.
Here, I am just talking about the federal taxes here, bear in mind that in Canada provinces have their own tax system and it varies from province to province.
2022 was a hard fiscal year for Canadians, we had to deal with high inflation and a rise in interest rates which made life more expensive to the majority of people in the country. In response to that and to try to alleviate a little bit of people’s burden to deal with the high inflation, the federal government of Canada has made some tax changes for the next fiscal year.
Let’s start with the not-so-good change. I say not so good at first, but in the end, it is a good change, that is the rise of the CPP (Canadian pension plan) contribution to 5,95%. It is true that you will see less money in your paycheck, but this is a contribution for your future self, and eventually, you will benefit from that. The total maximum amount on CPP a year is 3,754, once you paid that amount, you should see a jump in your paycheck.
The Canadian federal government has made changes in the basic personal taxes and updated the brackets which will put more money in people’s pockets for 2023. The personal taxes in Canada are due by brackets and the amount that surplus on the bracket is taxable with the next bracket percentage and so on.
To make it easy to see, please check the table below and note that the first bracket has increased by $3,000, the second by $6,000 and the third by $10,000.
That definitely was a good help, but on top of that, the total tax crest on the basic personal tax amount also was increased to $15,000 which will help to lower even more the taxes paid for the average Canadian this year.
Lowering the taxes is good, no doubt about it, but it is also good to have a plan for your hard-earned savings, right? In this case, Canada is very advanced and have you covered. I am talking about the TFSA (tax-free savings account) where you can contribute a certain amount and deduct it from your total income, paying even fewer taxes. Another excellent option available is the RRSP (registered retirement saving plan) where you can contribute to your retirement at the same time you are saving in tax now. TFSA and RRSP benefit not just Canadians and PRs but everyone that has a Social Insurance Number, students and workers under a temporary status. Both are easy to open and you just need to talk with your local bank institution. In your resume, you should have the extra money in your pocket in 2023 and now you have to decide what to do with that. Be smart and be wise.