Canadians: tax changes for 2020

There are some tax changes which be taking effect on January 1, 2020 you need to know.

Rates and Limits

As expected, several tax rates and limits are changing in 2020.

  • Federal and provincial income tax brackets are increasing to keep up with inflation.
  • Employment Insurance (EI) Premiums are decreasing from 1.62% in 2019 to 1.58% in 2020.
  • Maximum pensionable earnings, the amount used by the government to calculate Canada’s Pension Plan contributions for the year, is increasing to $58,700 in 2020, up from $57,400 in 2019. Similarly, the employee and employer contribution rates for 2020 will be increasing by 5.25%, up from 5.1% in 2019.
  • As was the case last year, the Canada Child Benefit will continue to be indexed to inflation. In 2020, the maximum a parent can receive is $6,639 for children under age 6 (up from $6,496 in 2019) and $5,602 for children ages 6 to 17 (up from $5,481 in 2019).

Basic Personal Amount

  • The basic personal amount is a non-refundable tax credit that all taxpayers are eligible to claim. The basic personal amount is the amount you can earn without paying any income tax. The amount, currently at $12,069 in 2019, is set to rise annually with inflation. However, the Liberals have promised to increase it more quickly. The basic personal amount will increase by 15% over the next four years, reaching $15,000 in 2023.

Tax brackets for 2020

  • For 2020, we will continue to have five federal income tax brackets, but they will all be indexed to inflation using the 1.9 per cent rate. The 2020 federal brackets will be: zero to $48,535 of income (15 per cent); above $48,535 to $97,069 (20.5 per cent); above $97,069 to $150,473 (26 per cent); above $150,473 to $214,368 (29 per cent); and anything above that being taxed at 33 per cent. Each province also has its own set of provincial tax brackets, most of which have also been indexed to inflation.

Tax-Free Savings Account Contribution Limit

  • In 2020, the annual contribution limit on the Tax-Free Savings Account (TFSA) is once again being upped. In 2019 the TFSA annual contribution limit was upped by $6,000 for the first time. The TFSA new contribution limit for 2020 is $6,000, matching the amount set for 2019 . If you’ve never contributed to the TFSA and you’ve been eligible to contribute since 2009, you’d have $69,500 in total contribution room.

Canada Training Benefit

The federal government introduced the Canada Training Benefit to help with disruption in the labor force due to changes in technology. This refundable tax credit is designed to lower the barrier to professional development and to provide financial support to help pay for half of the tuition and training fees. As a worker, you’ll be eligible to receive up to $250 annually as a tax credit.  To be eligible to accumulate $250 in a year, you must meet the following criteria:

  • File a tax return for that year
  • Be at least 26 years old and no older than 65 years old at the end of the year
  • Be a Canadian resident during the year
  • Have eligible earnings of minimum $10,000 and maximum $150,000 in the year (this includes employment, self-employment, and maternity and parental benefits)

Tax Breaks for Seniors

  • The Liberals have promised to increase Old Age Security (OAS) by 10% for seniors older than 75 years of age earning less than $77,580. The change will mean an increase of $729 annually in OAS starting in July 2020.
  • The Liberals are also promising an enhancement to the survivor benefit of Canada Pension Plan (CPP). The maximum pensionable earnings will increase to $58,700, up from $57,400. In addition, a surviving spouse, over the age of 65 and not otherwise receiving CPP benefits, will be able to get 60% of their deceased spouse’s pension. Under the change, it would mean an increase of $2,080 annually. Survivors between 60-64 years of age are eligible for 37.5%.

Claiming Cannabis as a Medical Expense

  • To reflect the fact that cannabis is legal in Canada, Canadians can claim a medical expense tax deduction for any cannabis products that they buy as a patient after October 16, 2018.

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