A local financial planner says 2023 is shaping up to be an exciting year.
Aaron Ruston of Purposed Financial in Moose Jaw shared some insight on the year ahead.
"In Canada, we have a marginal tax system where if you make up to a certain amount of money, you pay a certain amount of tax," he explained. "What the government is actually doing, in 2023 and moving forward is, they're expanding those areas, meaning for instance, if before you made $26,000 in income, you would have to pay 'x' percentage in federal tax. They're taking that up a little bit, saying, rather than $26,000, now you can make up to $28,000, and those are just examples. It should be a little less tax payable."
The Saskatchewan government says indexation will result in residents seeing $94.5 million in annual income tax savings. The level of indexation in 2023 will be 6.3 per cent, which matches the annual average national inflation rate from October 2021 to September 2022. The basic personal amount for 2023 is $17,661, up from $16,615 in 2022. In 2023 through indexation, on average, an individual with an income of $25,000 will see $125 in savings, a family of four with a combined annual income of $75,000 will save $371 and a family of four with a combined annual income of $100,000 will save $362.
The federal basic personal amount has increased to $15,000 this year, up from $14,398 in 2022.
The deadline to file personal income tax is April 30, 2023.
Ruston says increases to RRSP and TFSA limits will also help people save money.
"The maximum RRSP contribution room is up to $30,780. Maximum Tax-Free Savings Account (TFSA) has gone from $6,000 per year up to $6,500, which is good for the person that's trying to put away some money in a favourable way, so down the road they can draw it with no tax."
The deadline for RRSP contributions is March 1, 2023.
In terms of savings, another exciting account being discussed, but not yet fully approved, is the Tax-Free First Home Savings Account (FHSA), which was introduced in the 2022 federal budget.
"If you're at least 18 years and you haven't lived in a home that you've owned, you can put up to $8,000 per year, to a maximum of $40,000 into these First Home Savings Accounts," explained Ruston. "You get the deduction upfront, like you would on an RRSP, but you also get complete tax-free growth as well as when you draw it out, there's no tax payable on it. It's kind of a hybrid between an RRSP and a Tax-Free Savings Account."
Changes are also coming to the Canada Pension Plan (CPP), with employee and employer contribution rates rising 0.25 per cent from 5.70 per cent to 5.95 per cent in 2023.
Meanwhile, with the next interest rate review slated for January 25, 2023, Ruston is expecting another increase to the Bank of Canada benchmark interest rate.
"We're anticipating either a 25 or 50 basis point increase in interest rates overall. We're seeing that actually inflation, at least on paper, is slowing. What that means is they probably will continue to raise interest rates but the rate at which it's escalated will probably decrease as time goes by. There's belief that probably by the early part of the third quarter, interest rates will start to recede, they'll start to pull back, which is a good thing. Nothing's for sure, but it is something that we're probably seeing as they get more control of where things are going."
He stressed the importance of paying down non-deductible debt.
"With escalating interest rates the way they are, we've seen seven increases in interest rates over the last year. If you think about even GIC (Guaranteed Investment Certificate), if a person had one of those they were getting maybe three-quarters of a per cent about a year ago. Now they're over five per cent and that's reflected also in what people are paying as far as their interest rates. If you ever want to figure out how much it's actually costing you to have that loan out there, there's the rule of 72. Take 72, divide it by the interest rate you're paying and that's how quickly your debt is increasing. If you're paying 12 per cent, divide that into 72 and over six years your debt has doubled. Be cautious, pay down that high non-deductible interest rate on your loans. It will make a huge difference in the future."
Overall, Ruston is optimistic about the year ahead.
"The thing with Saskatchewan right now, even though we have this massive resource base, we have so much to offer the world, we're impacted by external forces in a huge way. I see some positives for Saskatchewan, our population is increasing due to immigration from Ukraine and elsewhere. There are people starting to move here to fill in some of those resource jobs again. There are so many openings. I know from our clients, we're seeing people constantly looking for employees. I think as people are becoming more aware of those, and filling those spots, I really believe Saskatchewan is going to benefit from this. There will be times of a little bit of hardship coming up, just because of inflationary costs, but overall I think Saskatchewan's going to do well. I have faith in our government but also faith in the people of Saskatchewan. We're a hearty people. I think we're going to do well this year."
Click below to hear Cory Knutt's full interview with Aaron Ruston: