Four tax changes you should know about
It’s a new year and there are a number of tax changes that kicked in Jan. 1 that will affect your pocket book. Many of them affect the lower and middle-class earners in Canada. In some cases, Canadians will be paying more for gasoline and natural gas. But, in most cases the changes will lower taxes for Canadians. Here is what you need to know about your tax situation in 2020.
Beginning Jan. 1 2020, the basic amount Canadians, in a set income bracket, can earn without paying income tax went from $12,069 to $13,229. That basic personal amount will continue to go up until 2023, until it reaches $15,000. According to the Canadian Taxpayers Federation (CTF), this year residents of Quebec will save $113 in income tax and all other Canadians will see a savings of $138. “The good news is that the Trudeau government’s decision to increase the basic personal amount will mean most Canadians see a reduction in income-related taxes,” says Aaron Wudrick, federal director for the CTF. A note for higher earners: This amount will be reduced for anyone earning more than $150,473 and go to zero for any earning more than $214,368.
Canada Pension Plan (CPP) premiums are going up by $97 a year, or 0.15 per cent, after increasing by the same amount in 2019. The CTF reports that this will cost taxpayers up to $97 in increased CPP tax, but the total tax cost is slightly less after accounting for the tax deductibility of the increased CPP tax. For a person making $60,000, the net cost of the increase is about $70, but varies depending on the province. This will mean a little more money off each paycheck towards CPP. But this will be offset by lower employment insurance (EI) premiums. In Quebec, the saving in lower EI premiums could be as high as $48, and in the rest of Canada it could go up to $20.
Help for homebuyers
Starting now, first-time homebuyers can access more money in their RRSP to use as a down payment on their first home. Through a program called the Home Buyers Plan (HPB), the money is effectively a loan to yourself that has to be paid back over time. The amount is increasing from $25,000 to $35,000. The program will also be available to anyone who experiences a marriage or common law partner breakdown. Those individuals can use this program to buy a home without having to pay any tax or penalty on the withdrawal if, for example, they had used the program before. The big catch is that you have to have the money already saved in order to access it.
Climate Action Incentive
Any province that does not have a plan to tax carbon will be subject to increased carbon pricing. In Alberta, for example, it is a $20 per tonne charge for carbon emissions. This will add to the cost of gasoline and natural gas. The federal government is offsetting this with an increased carbon tax rebate – as high as $888 per family in Alberta and $448 per family in Ontario. In most cases, very efficient homeowners may be able to keep some of that money in their pocket. The fuel charge is added to the cost of your gas when you fill up at the pumps or added to your home heating bills, effectively putting a price on pollution. If you are energy efficient, however, your rebate may cover all these elevated costs, if not more, leaving money in your pocket.
Other tax changes include a credit for Canadians who spend more than $500 on digital news subscriptions, and two new types of annuities Canadians can use to save for retirement in certain registered plans. If you have more questions, speak to a tax specialist or your accountant to determine how your specific tax situation is changing in this year.
Rubina Ahmed-Haq is a journalist and personal finance expert. She is HPG’s Finance Editor. She regularly appears on CBC Radio and TV. She is a contributor on CTV Your Morning and Global Toronto. She has a BA from York University, received her post graduate journalism diploma from Humber College and has completed the CSC. Follow her on Twitter @alwayssavemoney.