Important TAX CHANGES in CANADA for 2023 | TFSA, RRSP, FHSA, CPP

today I'll be breaking down the important tax changes for 2023 that you need to know I know it has been particularly hard for Canadians the past few months with record high inflation and increasing interest rates the tax numbers we will be going over were just released and for the most part it's good news for most Canadians who can expect lower taxes in the upcoming year hi I'm Gabrielle a CPA and tax expert in today's video I'll be covering the new contribution limits for tfsa rrsp the new highly anticipated fhsa or the tax-free first Home Savings Account CPP as well as changes in the tax brackets to give you a refresher I will also be giving a brief background on purpose eligibility contribution limits as well as withdrawal rules so that you can really take advantage of the various tax savings and retirement accounts and by being informed with the new changes you can really plan ahead and make the most of the 2023 new year so let's get started tax free savings account tfsa that tax-free savings account is a tax sheltered investing account that was first released in 2009 that is flexible and can be used towards any savings goal that you have in a tfsa you invest your money and earn income like interest dividends and capital gains tax-free typically if you invest in a taxable account you are subject to tax on your earnings every single year so the compounding effect on tax savings on your investments in your tfsa can be significant over time you are eligible for tfsa if you are a Canadian resident who is 18 years and older with a valid social insurance number or sin in terms of how much you could contribute to your tfsa is determined by your contribution room which grows every year with the tfsa annual room limit as you can see here the 2023 tfsa annual room is indexed to inflation and increased by 500 the first increase since 2019. your tfsa contribution limit accumulates over time and any unused room is carried forward so it doesn't disappear so for example if you are born in years 1991 or earlier your cumulative tfsa room is 88 000 the great thing about tfsas is that you can withdraw from it anytime without any penalties the only catch is that withdrawals made will be added back to your tfsa room the following year so for example let's say you have a contribution room of five thousand dollars you contributed the full five thousand dollars in February of 2023 and then later withdrew the five thousand dollars in June 2023. this means that you can't recontribute the full five thousand dollars until the following year in January 2024 when you have maxed out your tfsa room already in 2023 registered retirement savings plan or rrsp for short the rrsp is a registered account with the Canadian government with a purpose to save towards your retirement in an rrsp you invest your money and earn income like interest dividends and capital gains on a tax deferral basis this means that income grows in your rrsp tax free but you are taxed on that income when you eventually withdraw from your rrsp ideally when you retire typically if you invest in a taxable account you are subject to tax on your earnings every year but in rrsp your investment income doesn't get taxed and actually grows tax-free so why might you want to contribute to an rrsp versus a tfsa the greatest tax advantages with an rrsp is that the contributions you make are tax deductible which means that it reduces your taxes and potentially even receive a tax refund you are eligible to open an rrsp if you are a Canadian resident with a valid social insurance number or sin there is no minimum age but you can't contribute after the age of 71. you must also file a tax return and have earned income which is income from a job or your business dividend and capital gains are actually considered not to be be earned income how much you can contribute to your rrsp really depends on your contribution room which is determined by the lesser of 18 of earned income in the previous year or the annual or rrsp limit and for 2022 that limit was 29 210 so let's say that you earned seventy thousand dollars in the previous year this means that your rrsp limit in 2022 is a lesser of 18 times seventy thousand dollars which is twelve thousand six hundred dollars or the 2022 annual limit of 29 210 since a lesser amount in this case is twelve thousand six hundred dollars that is going to be your rrsp limit and this means if you contributed the full twelve thousand six hundred dollars you can actually get a tax deduction that reduces your taxable income on your 2022 tax year from seventy thousand dollars to fifty seven thousand four hundred dollars alternatively if you earned two hundred thousand dollars in the previous tax year your rrsp limit is the lesser of 8 18 times two hundred thousand dollars which is thirty six thousand dollars or twenty nine thousand two hundred ten dollars which is the 2022 annual limit in this case the lesser amount is twenty nine thousand two hundred ten dollars so this is going to be your rrsp limit for the 2023 year the annual limit has increased to thirty thousand seven hundred and eighty dollars which is index for inflation if you don't contribute to your rrsp or you haven't maxed out your RSB room your rrsp limit gets carried forward and accumulate so that you could contribute to it in a future year perhaps the biggest disadvantage to an rrsp is that you get taxed on withdrawals it relies on the assumption that your taxable income when you retire will be lower so that you will be subject to lower tax rates you can technically withdraw from your rrsp at any time as long as it's not a locked in type but the biggest catch is that you'll be hit with a hefty withholding tax rate of 10 for amounts up to five thousand dollars twenty percent withholding tax rate 34 amounts over 5000 and up to fifteen thousand dollars and thirty percent withholding tax for amounts over fifteen thousand dollars though the withholding tax is not going to be your final tax bill your withdrawals will be added to your taxable income and the final tax impact will depend on your marginal tax rate the withholding taxes that you paid will be used as a credit towards your final tax bill tax-free first Home Savings Account fhsa the federal government is releasing a new type of savings plan that aims to help Canadians save up for their first home perhaps the most exciting feature of the fhsa is that it combines the best parts of a tfsa in which you could withdraw from it tax-free and rrsp in which you can get a tax deduction for your contributions it was proposed in the 2022 budget and assuming that the bill will be passed it will enter into fours on April 1st 2023. you are eligible for the fhsa if you are a Canadian resident who is at least 18 years old you also need to be a first-time I'm home buyer which means that you didn't own a home that you lived in during the year the account is open or in the past four years the contribution limit is maxed out at forty thousand dollars over your lifetime and up to eight thousand dollars in any given year that means that you can max out your fhsa by contributing eight thousand dollars per year over five years in order to reach the Forty thousand dollars limit when you open your fhsa you can also carry forward the unused contributions to use in a later year you can withdraw from your fhsa tax-free if it's used towards a qualifying home purchase which means that you are a first time home buyer you have a written agreement to buy a home before October 1st of the following year of withdrawal and intend to live in the home as a principal place of residence within one year of buying it in addition the home needs to be located in Canada the main difference between the fhsa and the home buyers plan is that your withdrawal is higher it's forty thousand dollars versus 35 thousand dollars which means that you can withdraw five thousand dollars more tax-free under the fhsa in addition you are not required to pay back the Forty thousand dollars under the fhsa whereas under the HBP the home buyers plan you will need to pay back the withdrawn funds within a 15-year period otherwise the amount gets included in your income Canadian pension plan CPP CPP is a pension plan available to Canadians when they retire that pays out a monthly taxable benefit you can start receiving CPP when you are at least 60 years old and you could continue to receive CPP until the rest of your life to give you an idea of how much of monthly amount can be for 2022 the maximum monthly amount that you could receive as a new recipient starting the pension at age 65 years old is 1253.59 however the average monthly amounts paid for those who are newly retired and at 65 in July 2022 was only 737 dollars and 88 cents however in order to receive this benefit when you retire every person over the age of 18 who works in Canada and earns a minimum of 3 500 per year must contribute to a CPP how much you contribute depends on your employment income you may have noticed CPP as one of your deductions from your paycheck and while it may feel like another tax is money that you will see back when you retire in fact your employer also contributes towards your CPP as well in 2023 the CPP contribution rate increased to 5.95 of your earnings from 5.70 in 2022 that means both you and your employer contributes to your CPP at a combined rate of 11.9 of your earnings however if you are self-employed your business is actually responsible for making both payments of the full 11.9 there is also a ceiling with CPP where you make contributions between your annual earnings of a minimum of 3 500 dollars up to a maximum of sixty six thousand six hundred dollars in 2023 that means maximum CPP contributions are three thousand seven hundred fifty four dollars and forty five cents for employees and seven thousand five hundred eight dollars and nine cents for the self-employed any earnings after the maximum of sixty six thousand six hundred dollars is not subject to CPP and if this applies to you you will notice that your pay bump part way through the year where you no longer need to make a CPP contributions after you have reached the maximum amount and if you end up contributing more than the maximum amount you will be refunded the excess contributions when you file your tax return tax brackets lastly we'll be going over the tax brackets and any changes to the tax rates as a Canadian resident you will be subject to two separate tax rates the federal and the provincial or territorial before we jump in we need to understand two components in order to read the rates the first is the tax bracket which is the range of income that you are subject to tax on on each tax bracket is subject to a set tax rate which calculates your tax liability in each bracket so to put in other words everyone who earns up to the first tax bracket of fifty three thousand three hundred fifty nine dollars will be taxed the same 15 and if you earn more your next set of income will be taxed on the second set of tax rate of 20.5 percent and so on and to really hit it home for you let's go over an example let's say that you earn seventy thousand dollars this means that your first fifty three thousand three hundred fifty nine dollars is taxed at 15 which results in taxes of eight thousand and eight dollars and 85 cents and the remaining fifteen thousand six hundred and forty one dollars which was calculated by taking the seventy thousand dollars less the fifty three thousand three hundred fifty nine dollars is taxed at twenty point five percent resulting in taxes of three thousand four hundred eleven dollars and forty one cents you would owe total taxes of 11 415.26 which is the eight thousand eight dollars and eighty five cents plus the three thousand four hundred eleven dollars and forty one cents before any tax deductions or credits this is a progressive or graduated tax system where your income is taxed incrementally based on the tax bracket that you fall under now going over the federal tax rates there is good news with the tax brackets being more favorable to Canadians you can see that the tax bracket have increased from fifty thousand one hundred ninety seven dollars in 2022 to fifty five thousand three hundred fifty nine dollars which means that the difference are of around three thousand dollars of taxable income will be taxed at a lower rate of 15 in 2023 compared to 20.5 percent in 2022. in fact all the tax brackets will have a lower tax impact as even the highest tax bracket has shifted by almost fourteen thousand dollars to 235 676 dollars in 2023 compared to 221 000 708 dollars in 2022. in the second highest tax bracket the rates have even reduced from 29.38 in 2022 to 29.32 as for provincial rates it really depends on where you are living by using BC as an example you can see that similarly the tax brackets have increased so it's more favorable to Canadians where they will end up paying less taxes on more income and since it's confusing to look at two separate tax rates such as the federal and the provincial rates I like to look at the combined rates of the federal and the BC rates like this one that can show you your total tax impact while the tax brackets have shifted the tax rates stayed more or less the same with the highest marginal tax rate sitting at 53.5 percent as an employee there is a limit to what you can deduct from your income so if you are a high income earner from a job there is no major way of reducing your tax liability other than an rrsp and terrible donation however as a business owner there are more options when it comes to tax deductions and tax planning opportunities so that you don't end up paying the 53.5 of your hard-earned money in taxes if you want a free guide on top 10 tax write-offs for small businesses then make sure to get yours in the link down below and if you are a small business owner in Canada and would like help with your taxes make sure to get in touch and set up a discovery call all the links mentioned will be in the description box down below if you found today's video helpful make sure to watch these videos here thank you so much for watching and I'll see you in my next one bye

Channel: Gabrielle Talks Money

Views: 44,590

Keywords: tax changes 2023 Canada, Canadian taxes 2023, upcoming tax changes Canada, First Home Savings Account, FHSA, TFSA Limits, RRSP Limits, CPP Changes, Basic Personal Amount, CRA 2023, Essential Tax Info Canada, Important tax changes Canada, Canadian Tax Guide, gabrielle talks money, canadian cpa, canadian tax expert

Id: Fm82ck0AKYM

Length: 14min 35sec (875 seconds)

Published: Thu Jan 05 2023