It’s official – we’re in tax-filing season. You have until May 1 to file your 2022 taxes, and until June 15 if you’re self-employed – but do note that if you owe money, it’s still due on May 1. But what’s more is that in a year marked by high inflation, your tax return could help bring a bit of relief – for the current season and especially for next year and beyond.
With that in mind, let’s look at some new and forthcoming tax changes and what they might mean for you – especially if you’re aiming to buy your first home, are retired or nearing retirement. And as a bonus, we offer two simple ways you can make the most of your tax refund, should you receive one this year.
Tax brackets are rising quickly – but the biggest increase comes next year
Arguably the most important thing affecting your tax bill is your tax bracket, which is indexed to inflation, based on changes in the consumer price index (CPI).
In “normal” times, changes to these brackets are hardly worth mentioning. But with today’s higher inflation, tax brackets are rising much more quickly than usual, so you may pay less tax if your income simply holds steady from year to year.
To get a sense of how this may play out for you, let’s look at indexing on both the federal and provincial side of your tax return.
The table below shows brackets for the 2022 tax year, plus the government’s recently released tax brackets for 2023. This update means that 6.3% more of your income in the 2023 calendar year will be covered at the lower rate – nearly triple the increase we saw between 2021 and 2022. This 6.3% rise carries across all tax brackets.
Federal income tax table 2022 and 2023
|2022 Federal Income Tax Brackets||2023 Federal Income Tax Brackets||Federal Income Tax Rates|
|$50,197 or less||$53,359 or less||15.0%|
|$50,197 to $100,392||$53,359 to $106,717||20.5%|
|$100,392 to $155,625||$106,717 to $165,430||26.0%|
|$155,625 to $221,708||$165,430 to $235,675||29.0%|
|$221,708 and up||$235,675 and up||33.0%|
Provincially, BC has a 5.06% rate on income below $43,070 for the 2022 tax year. But the province’s 2023 limit of $45,654 is substantially higher – up 6% from 2022. Again, similar increases carry across all tax brackets.
New and improved credits covering home ownership
Beyond indexing, there are a few changes that could benefit you both this year and next, especially around housing. Let’s run through those next.
Home accessibility tax credit
If you renovated your home to make it safer for you or another family member (anyone in your household who is eligible for the disability tax credit) or are planning to, you can now get more of this cash back.
Here’s how this federal credit works: prior to the 2022 tax year, up to $10,000 of such expenses would be deductible. To calculate the tax credit, you apply the rate on the lowest federal tax bracket – 15% – to the total amount spent. That put the total credit at $1,500.
Starting this year, the amount of eligible renovations doubles to $20,000; the maximum credit also doubles to $3,000. The credit is non-refundable, meaning that if it’s more than the taxes you owe, you won’t get the difference as a refund. There is also a BC home accessibility credit, which is 10% of reno expenses, to a maximum of $10,000 in total costs or a top credit of $1,000 – and the BC credit is refundable.
First-time homebuyer’s tax credit
The first-time homebuyers’ tax credit works like the home-accessibility tax credit: when you buy a home, you can claim $750, which is the rate of the lowest tax bracket (15%) applied to $5,000 of the purchase price. Starting this year, you can apply this rate to $10,000 of the purchase price , for a top credit of $1,500.
New multigenerational housing tax credit
If you’re renovating your home to provide living space for another family member, you could be eligible for this new credit, which became active January 1. It offers a 15% credit on costs of up to $50,000, for a maximum credit of $7,500.
Two ways to use your tax refund to take the sting out of inflation
If you’re getting a refund this year, there are many ways you can use it to mitigate inflation, including paying down higher-interest debt. This includes a variable-rate mortgage if you have one. Conversely, consider these two often-misunderstood investment vehicles:
Tax-free savings accounts (TFSAs)
Also thanks to inflation, the yearly limit on TFSA contributions jumped this year, to $6,500 from $6,000. This allows you to hold more investments in your TFSA, which carries the potential for higher returns (and dividends) that you can withdraw from these accounts tax-free. As with the FHSA, unused TFSA room carries forward.
Those carryforwards translate into a lot of room for contributions: if you were 18 years old when TFSAs debuted in 2009, you could hold up to $88,000 in contributions in your TFSA. Those could be in a range of investments, from stocks to mutual funds to term deposits. To ensure you’re making the most of your TFSA, be sure to consult a financial advisor.
Registered education savings plans (RESPs)
The cost of post-secondary education is only going to rise from here, and a well-funded RESP for a child or grandchild is a great way to helping defray those costs.
You contribute to the plan much like you would to an RRSP, but unlike with an RRSP, you can’t deduct your contribution from your income. There are also grants available from the federal government – such as the Canada Education Savings Grant (CESG) – and from the province, including, the BC Training & Education Savings Grant (BCTESG).
Notes about government education grants
The lifetime maximum amount a child can get through the CESG is $7,200. It is available until the end of the calendar year in which the child turns 17. To apply for the CESG, personal contributions must be made to an RESP. Anyone can open and contribute to an RESP for a child – not just the child’s parents.
For the BCTESG, the amount is $1,200. You can apply for the child from the day they turn 6 until and the day before they turn 9. The child and their parent or guardian must be residents of British Columbia at the time of application and have a valid Social Insurance Number.
When your child or grandchild is ready for post-secondary school, they can withdraw funds from the RESP. They will have to pay tax on them, but their income is likely to be low at this point, so their tax payable would likely be minimal – or zero. Again, it’s best to speak with your advisor about the best education savings strategies for you.
Get the advice you need
Tax planning can be complicated, especially as your assets, income and investments grow. If you don’t already have one, you may want to work with a tax professional to provide sophisticated and specialized strategies suited to your needs. Your financial advisor can help connect you with a tax expert. Whether you’re looking to save on taxes or want to turn your refund into an investment opportunity, the right advice can help with achieving your goals.
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