What’s Happening in 2023? 5 New Year Changes That Impact Your Canadian Personal Finances
2022 was a big year. We saw record-high inflation, a down market for both stocks and bonds, and tons of big events making headline after headline.
I don’t know about you, but I’m ready for 2023.
And with the new year comes a lot of changes, especially regarding personal finances for Canadians.
In the last episode of the year—episode 62 of The Canadian Money Roadmap podcast—I talk about the things you can expect that will impact your Canadian personal finances.
Here are 5 key changes you need to know about.
5 Changes That Impact Your Canadian Personal Finances in 2023
More TFSA Contribution Room
The big news for 2023 is that the contribution room in the TFSA (Tax-Free Savings Account) is increasing to $6,500.
This represents a $500.00 increase from what we’ve been able to contribute over the last few years.
The reason for the increase is that TFSA room is indexed to inflation. So, as inflation rose this year, so does the TFSA contribution room. It is based on average inflation and then rounded to the nearest $500.00.
The TFSA is one of my favorite savings vehicles and something I believe everyone should utilize. So, January is a great time to re-evaluate your contributions to ensure you are maximizing it if you are in a position to do so.
Key takeaway: Review your TFSA contributions and aim to max it out at the new $6,500.00 room for 2023.
2. Higher CPP Contributions
Next up, changes to the CPP (Canadian Pension Plan). In short, the plan structure has changed so that future benefits will be higher for retiring Canadians.
But, that also means you will start contributing more to the CPP in 2023 to meet that goal.
Starting in January, CPP contributions will be 5.95% of your income (your employer also pays 5.95%) to a maximum of $66,600.00.
So, if you earn more than $66,600.00—or the Yearly Maximum Pensionable Earnings (YMPE)—you will stop paying contributions past that point. You may notice that your take-home pay is slightly higher because CPP is no longer being removed.
Key takeaway: CPP payments are increasing, so you will notice slightly lower take-home pay (if your income remains the same).
3. Increased CPP Payments
On the other side of the CPP coin are people in retirement who are currently receiving CPP payments.
The big news here is that there will be an inflation adjustment in 2023. The adjustment is based on average inflation over the last 12-month period and will be reflected in your CPP payments starting January 2023.
Key takeaway: CPP income will increase in 2023 based on an inflation adjustment.
4. Adjusted Tax Brackets
The next change to expect in 2023 is adjusted tax bracket thresholds at the federal level, though provinces are likely to follow suit.
Federal tax brackets will be adjusted in 2023 by 6.3%.
The practical application here is that, if your income remains stable, your taxes will decrease on average. While that’s a good thing, if your salary stays stable despite inflation, you ultimately have lower purchasing power. The lower tax bill can soften the blow, though.
This also impacts those people who use the RRSP (Registered Retirement Savings Plan) to reduce their income taxes. With different tax thresholds, it’s important to re-evaluate your RRSP plan and consider if it’s still optimal to contribute there or to use a TFSA instead.
Key takeaway: Tax bracket thresholds are increasing by 6.3% in 2023. This ultimately means fewer taxes payable overall, but may also impact RRSP contributions. Check-in with your financial professional to see if you need to adjust your plan.
5. New First Home Savings Account
The last big change for 2023 is an exciting one. At some point in the first quarter of the new year, the federal government will launch a new account for Canadians: the First Home Savings Account (FHSA).
There are some intricacies and details to it, but here are the basics:
Designed for people to purchase their first home; if they don’t use it for that purpose, it can be rolled into your RRSP.
Money acts like an RRSP on the way in—i.e., you get a tax deduction on the way in—and a TFSA on the way out—i.e., growth is tax-free.
I plan to talk more about the FHSA before it’s launched, so stay tuned for that. While I expect some pros and cons, it seems like a good option for those who have not yet purchased their first home.
Key takeaway: A new account launches in 2023 aimed at helping people buy their first home. Stay tuned for a future episode on this!
There you have it—5 key changes that will impact your Canadian personal finances in 2023. If you want to hear some more details, check out the full episode on The Canadian Money Roadmap podcast.
And, if you find it helpful, please share it with your family and friends. In my own “Spotify Wrapped” this year, I received key insights into how the podcast was doing. I was thrilled and humbled to see that The Canadian Money Roadmap podcast was in the top 5% of most followed and shared podcasts worldwide.
So, thanks for sharing, and thanks for being part of this personal finance community. I’ll see you in the new year!
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Evan Neufeld is a CERTIFIED FINANCIAL PLANNER® professional in Saskatoon, Saskatchewan and offers both investing and fee-only financial planning services.
*Disclaimer: Any numbers or rates of returns are used for illustration purposes only and should not be taken as fact. Note that the information in this article is current to the time of writing but is not guaranteed as up-to-date past then.
This article and accompanying podcast do not constitute personal financial advice. Evan Neufeld is a CERTIFIED FINANCIAL PLANNER professional in Saskatoon, Saskatchewan, and provides this Canadian personal finance content for educational purposes to the public. You are welcome to contact Evan to receive personalized fee-only financial planning or investment portfolio management.