Sharpen your pencil: tax changes to tackle inflation are coming into effect

Taxpayers should be aware of changes for filing 2022 personal income tax returns. (wutzkohphoto/Shutterstock - image credit)
Taxpayers should be aware of changes for filing 2022 personal income tax returns. (wutzkohphoto/Shutterstock - image credit)

Few things in life are as consistent as taxes and death, but the 2023 tax season brings a variety of changes that may help you keep more of your money if you know how to navigate the system.

Here are some of the significant changes to keep in mind when filing your 2022 personal income tax returns by May 1, 2023, or June 15 for those who are self-employed.

Tax brackets adjusted to inflation

Effective Jan. 1, 2022, federal income tax brackets have been indexed to inflation by 2.4 per cent.

In Alberta, tax bracket thresholds and credit amounts have been indexed for inflation by 2.3 per cent for the 2022 tax year.

Alberta's Ministry of Treasury Board and Finance says people can expect lower tax withholdings on their first paycheques of 2023.

"That's great to see, because that was something that a lot of taxpayers were looking for," said Jeffrey Herzog, a chartered professional accountant and assistant lecturer at the University of Alberta's school of business.

Income tax rates for 2022

Looking ahead about 16 months to when Canadians will be filing their 2023 tax returns, federal taxes will see an indexation increase of 6.3 per cent, a significant departure from the typical increase of two to 2.5 per cent.

This provides the opportunity for people to increase their purchasing power.

"If you're a retired senior, you might be able to withdraw a little bit more from let's say, your RRIF — your registered retirement income fund — but it won't necessarily put you into a higher tax bracket, where you'll be taxed more," Herzog said.

"So that's some welcomed relief, considering that inflation has been crazy over the past year, and quite possibly will be the same case for some of next year as well."

Tax credits and deductions

The first-time home buyers' tax credit was increased to $10,000 in 2022 from the previous $5,000. It is a non-refundable federal tax credit geared toward offsetting costs involved in buying a first home.

The home accessibility tax credit has also been doubled from $10,000 to $20,000. It can be claimed for renovation costs in making homes safer or more accessible for seniors, people over 65, or people with disabilities.

The federal basic personal amount has increased to $14,398 as part of an overall plan to increase the amount to $15,000 in 2023. Alberta, which has the highest basic personal amount in the country, is $19,369.

Big changes for 2023 

Starting in November, the federal government began issuing increased GST/HST tax credits to low- and modest-income Canadians. The credits range from $234 to $628, depending on family size.

Canada's new dental benefit program will provide families with up to $1,300 per child over two years, depending on income.

The new multigenerational home renovation tax credit can cover up to $7,500 for adding a secondary suite to accommodate a family member who is a senior or has a disability.

Another change expected to be significant is the tax-free first home savings account, which allows first-time home buyers to save $8,000 per year for up to five years, for a maximum total of $40,000.

"The contributions they make to that account are going to be deductible, so that's kind of similar to what we have for a [registered retirement savings plan]," Herzog said.

"Withdrawals from that account are non-taxable, so that's very similar to what we have with the tax-free savings account ... So that's really just looking at helping first-time home buyers save up for a new home."

Growing need for free tax clinics

Depending on your income, you may be able to make use of community volunteer income tax clinics, which can help file returns for free.

Katrina John-West, team lead for the Bissell Centre's financial empowerment program, said the organization's free tax clinic has seen a noticeable increase in the number of clients it serves.

"We are one of the few agencies in Edmonton that operate all year long and can file up to 10 years worth of taxes," John-West said.

"So this past year alone, we filed over 3,000 years' [worth] and it's resulted in over $5,300,000 being returned to individuals in poverty or low-income in the form of tax refunds, GST, climate action rebate and the Canada child benefit."

For John-West, the increased demand reinforces long standing problems in filing tax returns, especially for individuals who have low-income and find themselves unable to file a return.

The issue has become more complicated as some people struggle to repay COVID-19 pandemic payments.

"That's going to start coming out of benefits, as well as some people have those [Canada Revenue Agency] investigations ongoing, and they don't even know, which means all their tax returns are kind of in limbo," John-West said.

"They're not being processed, so no notice of assessments are being generated and most programs like subsidized housing, any benefit programs require a notice of assessment, even medical benefits."

John-West said the biggest thing to keep in mind is keeping relevant documentation on hand for at least six years as recommenced by the CRA.

"Tax filing, it's a complex process ... there's usually some follow up and the follow up is the difficult part, especially for people facing barriers."