In late 2019, the Canadian government tabled a motion that proposed to amend the Income Tax Act. Canada wants to increase the basic personal amount (BPA) to $15,000 by 2023, up from $12,298 in 2019.
According to the Canada Revenue Agency website, “The basic personal amount (BPA) is a non-refundable tax credit that can be claimed by all individuals. The purpose of the BPA is to provide a full reduction from federal income tax to all individuals with taxable income below the BPA. It also provides a partial reduction to taxpayers with taxable income above the BPA.”
In 2020, the maximum BPA has been increased to $13,229 for individuals with a net income of $150,473. The BPA will increase to $13,808 for the 2021 taxation year, $14,398 for the 2022 taxation year and to $15,000 for the 2023 taxation year. It will subsequently be indexed for inflation post-2023.
Many Canadians will benefit from this change, as the average resident is struggling with high debt-to-income levels. In case the economy falls into recession, there is a high risk of debt defaults. The BPA will help Canadians cover basic necessities, as there will be no federal tax on a certain amount, which can help boost savings or reduce debt.
The BPA is set to benefit almost 20 million Canadians and can result in annual tax savings of $300 once the implementation is complete. So, where do Canadians stash their incremental savings?
Invest in dividend-paying stocks like Enbridge
The broader markets are currently volatile, making investors extremely cautious at least in the short-term. The market correction in the last week has meant that several stocks are trading at attractive valuations.
As the stock prices fell, dividend yields moved higher, making them attractive for income investors. One such company is Canada’s energy giant Enbridge (TSX:ENB)(NYSE:ENB). With a market cap of $103 billion and an enterprise value of $175 billion, Enbridge is one of Canada’s largest companies.
The stock is trading at $50.91, which is 11% below its 52-week high. The recent pullback in shares has meant that the stock has a tasty forward dividend yield of 6.5%. So, in case you invest $10,000 in Enbridge stock, you will generate $650 in annual dividend payments.
Enbridge continues to invest heavily in capital expenditure. Its Line 3 Replacement Program is the largest project in company history, which will help Enbridge improve its pipeline infrastructure. This in turn will ensure that Minnesota and surrounding regions will have a secure and reliable supply of North American crude oil.
This project will cost the firm a staggering $2.9 billion and consists of replacing the existing 34-inch pipe with a new 36-inch pipe for 337 miles in Minnesota, 14 miles in Wisconsin and 13 miles in North Dakota.
The company has the world’s largest crude oil transportation system, and this advantage ensures low cyclicality and robust cash flows, helping Enbridge to consistently increase dividend payments. In the fourth quarter of 2019, Enbridge increased dividend payments by 9.8% to $0.81 per share per quarter. Enbridge has grown dividends at an annual rate of 12.1% in the last two decades.
