Another tax season is coming and early preparation is the key to a smooth filing of tax returns before the customary April 30 deadline. The Canada Revenue Agency (CRA) again alerts taxpayers to be mindful of the tax benefits or tax breaks available.
Essential benefits apply to the specific situations and circumstances of each taxpayer. If you know them, you could reduce your taxable income or realize tax savings.
A higher basic personal amount
One of the significant tax changes is the increase in the basic personal amount (BPA). For the 2023 tax year, every Canadian taxpayer will get a 4.1% boost to their tax returns with the $15,000 BPA.
Taxpayers earning less than $15,000 are exempt from paying federal income taxes. However, those with annual income above the threshold can deduct the BPA from the taxable income to reduce their tax liability.
First-Time Home Buyers’ Tax Credit
Many prospective homebuyers and real estate investors stayed on the sidelines in 2023 due to high mortgage costs and bloated home prices. However, first-time buyers can claim a non-refundable tax credit called the First-Time Home Buyers’ Tax Credit (HBTC).
If you purchased a home in 2023, the relief from the HBTC is worth $10,000. The CRA allows you to claim the amount in your tax return, and you’d be eligible to receive the maximum tax credit or rebate of $1,500. A person with a disability also qualifies for the HBTC, provided they are eligible for the Disability Tax Credit (DTC).
Spouses or common-law partners can split the HBTC between them, or only one can claim it. The qualifying homes in this program are single-family houses, semi-detached houses, townhouses, mobile homes, condominium units, and apartments in duplexes, triplexes, fourplexes, or apartment buildings.
Max out RRSP contributions
Though April 30 isn’t the only important date for taxpayers. Registered Retirement Savings Plan (RRSP) users have until February 29, 2024 to contribute and reduce taxable income. For the 2023 taxation year, 18% of earned income up to a maximum of $30,780 is the maximum RRSP contribution limit.
RRSP contributions made during the first 60 days of 2024 but contributions received after the deadline are not eligible for deduction for the 2023 taxation year. Moreover, setting aside money in an RRSP reduces annual taxable income for the year you contribute.
RRSP stock
The RRSP reduces tax bills and shelters investment income at the same time. Funds in the tax-sheltered registered plan become taxable income when you withdraw them. Thus, holding income-producing assets like dividend stocks in an RRSP can create retirement wealth.
Canadian Western Bank (TSX: CWB) is an ideal long-term holding in your RRSP. The $2.9 billion regional bank is a dividend aristocrat owing to 31 consecutive years of dividend increases. At $30.39 per share, the bank stock pays an attractive 4.36% dividend.
Assuming you own 1,000 CWB shares ($30,390), your money will generate $331.25 every quarter. Since money growth is tax-free, the investment will compound to $57,382.24 in 15 years, including dividend reinvestment.
Once a year
Tax filing happens once a year, so make the best of the activity. Preparing early, and knowing and claiming the available tax credits can compensate for the effort and stress.
