CRA: 2 CPP Changes Canadian Investors Need to Know for 2023

Here’s how you can use the CPP tax credit to buy blue-chip TSX stocks such as Brookfield Asset Management in 2023.

| More on:
think thought consider

Image source: Getty Images

The Canada Pension Plan, or CPP, is a monthly taxable benefit that aims to replace a portion of your income when you retire. Typically, the amount Canadians receive each month during retirement is based on multiple factors, such as the average earnings throughout your working life, contributions to the pension plan, and the age at which you decide to start the retirement pension.

What are the CPP changes for 2023?

Here are two important changes to the CPP Canadian investors need to know for 2023. First, the maximum pensionable earnings under the CPP for 2023 will increase to $66,660 from $64,900 in 2022.

The Canada Revenue Agency explained the increase in CPP accounts for the growth in weekly wages and salaries in the country. Contributors who earn over $66,600 next year are not permitted to make additional contributions to the pension plan. Further, the basic exemption amount remains unchanged at $3,500.

Next, the contribution rate for employees and employers will rise to 5.95% in 2023, up from 5.70% in 2022. For self-employed individuals, the contribution rates will double to 11.90% next year from 11.4% in 2022. So, the maximum employer and employee contribution rates will rise to $3,754.45 in 2023 compared to $3,499.80 in 2022.

Canadians can also claim a 15% tax credit on their CPP contributions. So, if you contribute $3,754.45 towards the CPP next year, you can lower the tax bill by almost $562 (15% of $3,754.45). For self-employed individuals, this tax credit will double to $1,124. Let’s see how you invest the savings from the CPP tax credits and build wealth over the long term.

Use the CPP tax break to purchase blue-chip TSX stocks

Canadians can invest savings from the CPP tax break to purchase blue-chip stocks such as Brookfield Asset Management (TSX:BAM.A). One of the largest alternative asset managers globally, BAM is valued at a market cap of US$73 billion. Down 20% from all-time highs, BAM has returned 2,300% to investors in the last two decades. So, an investment of $1,000 in Brookfield Asset Management in November 2002 would be worth almost $25,000 today after adjusting for dividends.

With more than US$750 billion of assets under management, BAM provides investors exposure to several sectors such as real estate, clean energy, private equity, credit, and infrastructure. The company aims to deliver risk-adjusted returns to its clients and shareholders by managing a wide range of public and private investment products and services.

BAM earns asset management income in the form of fees for providing these services. As it has access to large-scale capital, Brookfield Asset Management can invest in sizeable assets and businesses across geographies and asset classes.

Despite a challenging macro environment, Brookfield Asset Management increased its funds from operations by 30% year over year to US$1.2 billion in the third quarter. The strength of the asset management business drove fee-based earnings higher by 20% to US$531 million compared to the year-ago period.

BAM also pays investors annual dividends of US$0.56 per share, indicating a forward yield of 1.2%. These payouts have increased at an annual rate of 8.4% in the last 20 years.

Due to its excellent record, Brookfield Asset Management’s inflows in the third quarter totaled US$33 billion, allowing the company to increase its fee-bearing capital by 19% to US$407 billion.

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 recommends Brookfield Asset Management and Brookfield Asset Management Inc. CL.A LV. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Dividend Stocks

The Top Canadian REITs to Buy in April 2024

REITs with modest amounts of debt, like Killam Apartment REIT (TSX:KMP.UN), can be good investments.

Read more »

Technology
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

Some of the smartest buys investors can make with $500 today are stocks that have upside potential and pay you…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

2 Dividend Stocks to Buy in April for Safe Passive Income

These TSX Dividend stocks offer more than 5% yield and are reliable bets to generate worry-free passive income.

Read more »

protect, safe, trust
Dividend Stocks

How to Build a Bulletproof Monthly Passive-Income Portfolio With Just $1,000

If you've only got $1,000 on hand, that's fine! Here is how to make a top-notch, passive-income portfolio that could…

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

CPP Insights: The Average Benefit at Age 60 in 2024

The average CPP benefit at age 60 in average is low, but claiming early has many advantages with the right…

Read more »

thinking
Dividend Stocks

Why Did goeasy Stock Jump 6% This Week?

The spring budget came in from our federal government, and goeasy stock (TSX:GSY) investors were incredibly pleased by the results.

Read more »

woman analyze data
Dividend Stocks

My Top 5 Dividend Stocks for Passive-Income Investors to Buy in April 2024

These five TSX dividend stocks can help you create a passive stream of dividend income for life. Let's see why.

Read more »

investment research
Dividend Stocks

5 Easy Ways to Make Extra Money in Canada

These easy methods can help Canadians make money in 2024, and keep it growing throughout the years to come.

Read more »