New year brings new numbers
Each year, nearly all personal income tax and benefit amounts are indexed to inflation, effective Jan. 1. Some increases, however, such as increases to the Canada child tax benefit and the GST/HST credit, only take effect on July 1, which coincides with the start of the program year for payment of these benefits. That's because these benefits are income-tested, based on the prior year's net income as reported on your tax return, which is generally assessed by that date.
The indexation increase for 2013 is 2%. Here are some of the numbers: 2013 federal tax brackets We have four federal tax brackets: zero to $43,561 (15%), $43,561 to $87,123 (22%), $87,123 to $135,054 (26%), with anything above that being taxed at 29%.
Each province (other than Alberta, which has a 10% flat provincial tax) also has its own set of provincial tax brackets, which have also been indexed to inflation, but at the appropriate provincial indexation factors.
Basic personal amount The federal basic personal amount for 2013 is $11,038. This amount, along with all other amounts, is eligible for a non-refundable tax credit. The amounts are "non-refundable" as you cannot generate a tax refund as a result of claiming these credits; rather, the credits can only be used to reduce taxes otherwise payable.
All non-refundable credit amounts other than the two-tiered donation credit are calculated at the lowest federal bracket rate, which is 15%. So, for example, the basic personal amount is worth $1,656 ($11,038 X 15%) in reduced federal tax. This also means that if an individual's total income is less than $11,038, they will not pay any federal tax since the tax rate of 15% is equal to the credit rate.
Canada Pension Plan While CPP rates aren't changing (4.95% for employees and double that if you're self-employed), the maximum pensionable earnings for 2013 is $51,100, which is up $1,000 from 2012. The ceiling is calculated according to a legislated formula that takes into account the growth in average weekly wages and salaries in Canada. If you earn more than $51,100 in 2013, no additional CPP contributions are required.
The new maximum employer and employee contribution to the plan for 2013 is up slightly to $2,356, and the maximum self-employed contribution is double that, or $4,712.
2013 TFSA contribution limit Finally, you'll recall that the new 2013 TFSA contribution limit is $5,500, as announced late last year. This increase from the prior four years' annual contribution limit of $5,000 is also as a result of inflation indexing, but to keep the annual limits easy to remember, the government legislated that the annual limit would be rounded to the nearest $500.
If you have yet to open your first TFSA, due to the unlimited carryfor-ward associated with TFSA contribution room, you can now contribute a total of $25,500 to your TFSA, provided you were at least 18 in 2009.