The basic personal amount, or BPA, is a non-refundable tax credit that can be claimed by Canadian residents filing their taxes. The Canada Revenue Agency (CRA) offers a full tax deduction on the BPA for individuals earning less than $40,000 annually.
The BPA was increased from $14,398 in 2022 to $15,000 in 2023. So, if you are filing taxes this year and earned less than $40,000 in 2023, you can reduce your tax bill by $2,250 (15% of $15,000).
Further, the BPA will be indexed for inflation going forward and has increased to $15,705 for the 2024 taxation year.
Use the BPA tax break and increase savings
Canadians should aim to reduce their tax bill and invest these savings into inflation-beating asset classes to benefit from compounded gains over time. For instance, in the last 20 years, the S&P 500 index has returned roughly 10% annually in dividend-adjusted gains to investors.
So, an investment of $500 each month in the S&P 500 would return over $103,000 in 10 years, $383,000 in 20 years, and more than $1.1 million in 30 years.
Investors should ideally allocate a majority of their equity investments towards low-cost index funds such as those tracking the S&P 500 index. Here, you gain access to the largest companies in the world, including Apple, Microsoft, Nvidia, Amazon, and Alphabet.
Investors should also note that around 90% of large-cap mutual funds have failed to beat their respective benchmarks, making index funds a much better investment option.
Invest in growth stocks such as CrowdStrike
Canadian investors can also consider investing a small portion of their savings in quality growth stocks such as CrowdStrike (NASDAQ:CRWD) to benefit from outsized gains in the upcoming decade. Valued at US$68 billion by market cap, CrowdStrike stock is trading near all-time highs after surging 185% in the last 12 months. Since its initial public offering in 2019, CRWD stock has returned close to 400%.
CrowdStrike is part of the cybersecurity sector, which is fairly recession-proof. The global shift towards digital transformation, coupled with an exponential rise in the number of connected devices and the work-from-home trend, has drastically increased the number of cybersecurity attacks.
CrowdStrike operates in the endpoint security segment. It offers a cloud-based artificial intelligence-powered Falcon platform to enterprises to protect them from attacks. Around 63% of CrowdStrike’s customers use at least five modules, while 42% use at least six modules. In the prior-year period, these numbers stood at 60% and 36%, respectively.
A strong customer retention rate and higher adoption rates allowed CrowdStrike to increase sales by 35% year over year to US$786 million in the fiscal third quarter (Q3) of 2024 (ended in October).
Due to its higher operating leverage, net income more than doubled to $199.2 million in this period. In the last three quarters, its free cash flow also rose to US$655 million, 40% higher than the year-ago period, indicating a margin of 30%.
CrowdStrike continues to invest heavily in research and development (R&D), which will enable the company to expand its portfolio of products and solutions. In Q3, R&D spending grew by 38% to US$410 million.
Priced at 76 times forward earnings, CRWD stock is expensive. But quality growth stocks command a lofty multiple due to a rapidly widening earnings base.
