Hooray! This CRA Change Means Lower Taxes in 2021

A major change by the CRA in 2021 will lower taxes of millions of Canadian taxpayers. Earning more tax-free from Atco Ltd. stock is also possible for thousands of TFSA investors.

| More on:
edit CRA taxes

Image source: Getty Images

No one can stop taxes or be free of the burden, because it’s a vital source of revenue for governments. Taxpayers assume tax is a bad thing, as it eats up hard-earned money. However, people should understand how crucial it is to pay or update tax deficiencies.

Canada uses the self-assessment tax system, which is the most economical and efficient way to collect income tax. Every taxpayer has to complete a tax return yearly and report it to pay taxes or claim a tax refund.

The Canada Revenue Agency (CRA) collect taxes, so the government will have the funds to deliver essential services and social goods or benefits to its citizens. Likewise, the government redistributes tax revenues to address inequality and uplift people from poverty. Furthermore, health and education systems improve because of taxes.

Administering tax laws in Canada is also a responsibility of the CRA. The tax agency implements changes or adjustments that often favour taxpayers. A major change will lower taxes in 2021 due to the amendments to the Income Tax Act.

Higher BPA

Among the non-refundable tax credits that matter most to every Canadian taxpayer is the basic personal amount (BPA). The BPA, when applied to a tax return, reduces the taxable income of an individual taxpayer. For 2021, the BPA is $13,808, or an increase of $571 from the amount in 2020.

A taxpayer can earn up to $13,808 this year before paying federal taxes. However, there are tax bracket thresholds on amounts relating to the BPA. You can claim the full BPA if your net income from all sources in 2021 doesn’t exceed $151,978 (29% tax bracket).

The BPA will reduce if a taxpayer’s income is above $151,978 but not equal to $216,511 (33% tax bracket). If income is higher than or equal to the 33% tax bracket income, the BPA is $12,421.

Tax-free money; fewer taxes

Canadians can save tax-free money or pay fewer taxes by opening a Tax-Free Savings Account (TFSA). More so, investing in a $4.24 billion diversified utility company with an impressive asset base will reward you with a recurring income stream.

Atco (TSX:ACO.X), the largest natural gas distribution company in Alberta, has a long history of dividend growth. It has raised its dividends for 26 consecutive calendar years. The current yield is 4.9%. Your $6,000 capital will make $294 in tax-free money. Assuming your available TFSA contribution room is the maximum ($75,500), the windfall is $3,699.50.

The business outlook for Atco is bright and encouraging. It’s well positioned to meet the growing demand for energy, housing, logistics support, and infrastructure solutions. Atco’s structures and logistics segments are likewise expanding in new global markets offering long-term growth potential.

Competition in the utility sector is tough, although Atco has the competitive edge in innovative solutions and unmatched skills in recognizing customer requirements. The company has been operating for 73 years and is present in more than 100 countries. Purchase now before the price appreciates 39.3% to the forecasted $51 in the next 12 months.

More broad-based tax changes

The increase in 2021 is the second of four broad-based changes by the CRA. Expect the amount to increase by $590 and $602 in the next two years. By 2023, the BPA will be $15,000. Taxpayers will have more money to cover basic needs.

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 Christopher Liew has no position in any of the stocks mentioned.

More on Dividend Stocks

lab worker inspects test tubes
Dividend Stocks

Warren Buffett’s Buying This Passive Income Stock

Berkshire began buying this chemical company earlier this year and hasn't stopped.

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Need Passive Income? Turn $5,000 Into $23.85 Every Month

If you're looking for passive income that comes in like a paycheque, this dividend stock provides that to you along…

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

A TFSA Contribution Room of $88,000 and 1 Dividend Aristocrat Can Make You $172,330 Richer

A high-yield Dividend Aristocrat in the energy sector is a suitable holding for Canadians with $88,000 available contribution rooms in…

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

2 Dividend Stocks to Buy Now Under $50

Here are two of the best under-$50 dividend stocks you can buy in Canada right now.

Read more »

TELECOM TOWERS
Dividend Stocks

If I Could Only Buy 1 Stock Before 2023, This Would be it!

If you could buy 1 stock before 2023, what would it be? Here’s the stock I’m considering, and I think…

Read more »

Beautiful holiday decorated background with christmas gift boxes ,fir. christmas holiday concept
Dividend Stocks

3 Dividend Stocks to Help Offset Holiday Spending

The holidays are here, and so is the seasonal spending. Offset some of those costs by putting your investment cash…

Read more »

edit Businessman using calculator next to laptop
Dividend Stocks

The 3 Passive-Income Stocks I’m Buying Next and Never Selling

These passive-income stocks have a proven track record of growth and a solid sector that will guarantee income for decades.

Read more »

oil and gas pipeline
Dividend Stocks

Enbridge Stock Rose More Than 4.5% in November: Is it a Buy Today?

Enbridge is having a good year. Are more gains on the way for the stock?

Read more »