The Motley Fool

Calling ALL Canadians: Basic Income to Grow to $15,000!

Image source: Getty Images

On December 9, 2019, the federal government announced that by 2023, the Basic Personal Amount (BPA) would be grown to $15,000. That’s a fair jump from today, but what does this mean for Canadians? And how will it benefit you – or not – on your tax return?

How it works

The BPA is a non-refundable tax credit that can be claimed by any individual living and working in Canada. The idea is to give a full reduction from your federal income taxes if you make below the BPA. It then gives a partial reduction for those making above the BPA. Basically, it reduces what you owe the government at tax time.

One year ago, the government announced it would begin to increase the BPA. In 2020, the BPA will increase from $12,298 to $13,229 for those making a net income of $150,473 or less. From there, it will be increase to $13,808 in the 2021 tax year, $14,398 in 2022, and $15,000 by 2023. After that, it will be indexed based on inflation.

So when it comes to your taxes, you are able to take $15,000 off your net income at the end of the year. This will reduce the 15% in taxes that come from the BPA, which by 2023 will by $2,250! For this year, it will be $1,984 based on the 2020 amount that comes off your tax return if you make under that $150,473 amount.

Grow your own BPA

There are great advantages to the BPA, mainly that it brings down the overall amount you would owe the government at tax time. This can be the difference between a higher and lower tax bracket. It’s also beneficial at a time when there is a highly volatile market that is likely to continue for even years.

Even with a vaccine for COVID-19, it is likely going to be some time before the economy completely rebounds in a post-pandemic world.

So right now, it’s ideal to take advantage of the BPA and create your own BPA in case of another emergency and market crash. I like to recommend taking 10% of each pay cheque to put toward investing in a Tax-Free Savings Account (TFSA). However, I understand this year has been hard financially.

Instead, perhaps take the discount you receive from the BPA each year and put that toward investing. This year, that would be $1.984, as I mentioned previously.

Foolish takeaway

Used properly, this can create a solid passive income stream. A great option to consider are dividend stocks in the healthcare industry. This area is getting a lot of investment during the pandemic, making it a perfect defensive stock in a volatile market.

That makes NorthWest Healthcare Properties REIT (TSX:NWH.UN) a strong option with its 6.37% dividend yield and its five-year return of 121% as of writing. Especially as revenue continues to soar from 1% about a year ago, to 10.8% during the latest earnings report.

If you started with using half of your 2021 TFSA contribution room, that would be a $37,750 investment, bringing in $2,416 in annual dividends as of writing!

Add $1,984 and you now have $2,542 in annual passive income! That’s a solid, practically guaranteed personal basic income as long as NorthWest remains on its steady track.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe owns shares of NORTHWEST HEALTHCARE PPTYS REIT UNITS. The Motley Fool recommends NORTHWEST HEALTHCARE PPTYS REIT UNITS.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.