CRA: 3 Big Changes Coming to 2023 Tax Breaks

Use the tax breaks to lower your tax bill and purchase blue-chip TSX stocks such as Royal Bank of Canada.

| More on:

Inflation touched multi-year highs in Canada this year due to rising gas prices and quantitative easing measures employed by the country to combat COVID-19. In order to cool down inflation, the Canadian central bank has hiked interest rates multiple times this year. Now, the Canada Revenue Agency has announced increases to tax breaks for 2023. The tax cuts should offer some breathing space to millions of residents.

Big changes to 2023 tax breaks

The Canada Revenue Agency or CRA offers multiple benefits to Canadians, including:

  • Basic Personal Amount or BPA Tax credit
  • Goods and Services Tax Credit
  • Maximum pensionable earnings for 2023

Let’s see how each of these tax breaks will impact Canadians in 2023.

The basic personal amount or BPA is a non-refundable tax credit that can be claimed by all residents. A non-refundable tax credit reduces your tax liability, and the BPA aims to reduce federal income taxes for those with taxable income below the BPA.

The CRA is set to increase the BPA to $15,000 in 2023 from $14,398 in 2022, lowering your tax bill by $2,225 (15% of $15,000).

Last week, Justin Trudeau, the Canadian Prime Minister, announced residents have started receiving the revised Goods and Services Tax Credit (GSTC) payments. Over 11 million low-income individuals and families are grappling with higher cost of living expenses. So, the government doubled GSTC payments for six months allowing couples with two children to receive up to an extra $467, while seniors will receive an extra $225 on average.

The maximum pensionable earnings under the CPP (Canada Pension Plan) will increase to $66,600 in 2023, up from $64,900 in 2022. So, those who earn over $66,600 in 2023 will not have to make additional contributions to the Canada Pension Plan. The basic exemption amount for the year is unchanged at $3,500.

The above tax breaks can reduce your tax bill or increase your cash flow (due to a rise in GSTC payments) next year, which can be used to buy quality TSX stocks such as Royal Bank of Canada (TSX:RY) at a discount. The stock market has historically derived inflation-beating returns to investors and provides several opportunities to build long-term wealth. Let’s see how.

Is Royal Bank of Canada stock a buy?

The banking sector is cyclical, and the current macro environment remains challenging, driving shares of Royal Bank of Canada (TSX:RY) lower by almost 15% from all-time highs. But Canada’s banking sector is extremely resilient and has survived multiple recessions while maintaining a robust balance sheet.

Royal Bank of Canada is the largest stock on the TSX, valued at a market cap of $177 billion. In the last 20 years, RY stock has gained 353%. After adjusting for dividends, total returns are closer to 900%.

If you invested $1,000 in RY stock back in November 2002, you would have bought 36 shares of the company. Back then, those shares would have paid $29 in annual dividends in the next year, indicating a yield of 2.9%. Today 36 shares of RY will pay shareholders $184 in annual dividends, increasing your effective yield to 18.4%. In the last two decades, RY stock has increased its dividend yield at an annual rate of 9.7%.

Valued at 11 times forward earnings, RY stock is trading at a reasonable multiple, given its tasty dividend yield and earnings expansion.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Bank Stocks

Financial analyst reviews numbers and charts on a screen
Bank Stocks

1 Superior Stock Down 7% to Buy and Hold for Life

Scotiabank is still one of the best of the big banks, so let's get more into why.

Read more »

customer uses bank ATM
Bank Stocks

1 Canadian Banking Giant That’s My Top TSX Pick

From recovery to momentum, here’s why I’m backing TD Bank as my top TSX stock pick this year.

Read more »

woman checks off all the boxes
Dividend Stocks

CPP Collectors: Here Are 3 More Red Flags the CRA is Watching

Worried about the CRA? Stop immediately by taking these steps and investing wisely.

Read more »

some REITs give investors exposure to commercial real estate
Stocks for Beginners

A 3.4% Dividend Yield? I’m Buying This Dividend Darling and Holding for Decades

Grab this dividend yield while it lasts, and never worry again while holding the top choice on the market!

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Stocks for Beginners

I’d Put All My $7,000 TFSA Contribution Into This Dividend Stock Right Now

If I'm looking to make some extra cash, then this dividend stock is my first stop.

Read more »

Real estate investment concept
Bank Stocks

Forget Royal Bank of Canada (TSX:RY)! There’s a New King in Canadian Banking

Here's why EQB stock could deliver outsized gains compared to RBC stock over the next 18 months.

Read more »

open vault at bank
Bank Stocks

This Banking Giant Yields 5.6% and Dominates the Canadian Market

This TSX bank ETF is in a league of its own.

Read more »

investor looks at volatility chart
Dividend Stocks

Buy the Dip: 3 Canadian Stocks to Buy Now, Even if the Markets Drop

With energy, banks and mining on your side, these are some of the best buys when the market dips.

Read more »