Highlights of Changes to Federal and Quebec Personal Tax Rates, Credits and Amounts for 2013.

Every year Revenue Canada and Quebec increase the thresholds for tax and benefit amounts to reflect annual inflation rates which is based on the consumer price index data compiled by Statistics Canada. The information is communicated via a neatly organized table on their website, to which links are provided below, for those of you who can’t get enough financial data.  For everyone else I have highlighted some of the more interesting changes

Revenue Canada (CRA)  

  • The indexation factor for increases is 2%
  • The basic tax credit increased to 11,038 from 10,822 meaning that any taxpayer earning under $11,038 will not have to pay any income taxes.  Keep in mind that this does not apply to the Canada pension plan (CPP) for which the basic exemption is $3,500.  For example if you have self employed income of $10,000, you will still be required to contribute 4.95% of $6,500 = $321.75.  If you are an employee you are only required to contribute half of this amount, while your employer is responsible for the other half.
  • The highest tax bracket for federal purposes starts at $135,054.  That means every dollar that is earned exceeding this amount will be taxed at 29% (plus your provincial rate – see Quebec below)
  • You are allowed to claim a tax credit up to $11,038 for your spouse less any income they earned during the year.  This is particularly beneficial for taxpayers whose spouses do not work or who earn a minimal income.  You may apply for a reduction in deductions at source (if you got married during the year or did not do this before) with your employer by filling out form T1213 (available through the internet or your HR department).  Similarly you can claim a credit of $2,238 for each child under 18.
  • The ceiling for medical expenses increased to $2,152 i.e. you may only claim medical expenses that exceed the lesser of this amount or 3% of your net income.  For those of you earning $71,700 or above, you will have to come up with $2,152 in medical receipts (not covered by insurance).    Keep in mind that you are allowed to combine your medical receipts for your family and have them apply to the spouse that has a lower income.
  • You are entitled to a family GST credit of $265 in 2013 ($139 if you are single) if your family net income is under about $35k.  After that the credit begins to phase out.
  • The TFSA limit increased from $5,000 to $5,500 which is a decent incentive to save money as the interest income is non taxable.  As of 2012, the total principal you are allowed to contribute to your TFSA is $20,000, which of course you should have already done.
  • RRSP contribution limit for 2013, which will be based on your 2012 earned income,  is $23,820 up from $22,970 in 2012.  The maximum contribution rate is 18% of “earned income” (interest or dividends sadly do not qualify).
  • Details of changes in 2013 can be found at Revenue Canada 

Revenue Quebec 

  • The indexation factor for increases is 2.48% for 2013
  • Perhaps the most notable change to Revenue Quebec tax rates in 2013 is the introduction of a new tax bracket (hooray) for those earning more than $100,000.  i.e. for every dollar earned an excess of $100,000 you will be taxed at 25.75%.
  • The other notable new change is the introduction of the progressive health insurance contribution.  Taxpayers earning over $150,000 are required to pay a flat $1,000 starting in 2013, while those earning between $42,000 and $130,000 are required to pay $200.  Further details on the calculation depending on your tax bracket can be found here
  • The basic exemption for Quebec is $11,195 (slightly higher than the federal amount) which includes contributions to QPP, QPIP, EI and QHSF.
  • Quebec residents contribute to the QPP instead of the CPP.  The contribution rate has increased from 10.05% to 10.20% in 2013 while the maximum contribution amount is $4,855.20 (compared with 9.9% and $4,712.40 federally).  As mentioned above, the amount payable if you are an employee is only half as the employer is responsible for paying the rest (one advantage to being an employee over being self employed).
  • The QPIP rate remains the same; however the maximum threshold has increased from $66,000 to $67,500 thereby increasing the amounts that taxpayers with higher earnings will pay.
  • There are small increases in the solidarity tax credit which includes a QST component and a housing component.  Revenue Quebec has kindly provided a calculator which can be found here
  • Finally there was a change to the to QST rate, although the effective calculation remains the same.  See QST Change in 2013 for details.
  • Details of changes in can be found at Revenue Quebec 

Ronika Khanna is a Montreal Accountant who helps small businesses with their accounting, sales and business taxes.  Please sign up to receive articles pertaining to small business, accounting, tax and other occasional non business topics of interest.  You can also follow her on Facebook ,TwitterGoogle Plus or Linkedin