Lower Taxes for Middle Class and People Working Hard to Join It

From: Department of Finance Canada

Backgrounder

To help all Canadians cover their most basic needs, no federal income tax is collected on a certain amount of income that a person earns. This is called the Basic Personal Amount (BPA). In 2020, the existing BPA would allow Canadians to earn close to $12,300 before owing any federal income tax.

Today, the Government is moving forward with a proposal that would put more money in the pockets of Canadians, by lowering taxes for the middle class, and people working hard to join the middle class. This would be accomplished by increasing the BPA to $15,000 by 2023 (see schedule of proposed increases in Table 1 below).

Table 1

Existing and Proposed Basic Personal Amounts

Year Existing BPA1Proposed BPA
2020$12,298$13,229
2021$12,554$13,808
2022$12,783$14,398
2023$13,038$15,000
1 Based on Department of Finance Canada projections for indexation for 2021-2023 period.

The Government also proposes to increase two related amounts, the Spouse or Common-Law Partner Amount (“Spousal Amount”) and the Eligible Dependant Credit, to $15,000 by 2023, in tandem with the proposed increases in the BPA.

To ensure that this tax relief goes to the people who need help most, the Government would phase out the benefits of the increased BPA for wealthy individuals. Specifically, the increase in the BPA would be gradually reduced for individuals with net incomes above $150,473 in 2020 (the bottom of the fourth tax bracket). The Spousal Amount and Eligible Dependant Credit would also be gradually reduced for individuals with net incomes above $150,473 in 2020, and will continue to be reduced dollar-for-dollar based on the net income of the dependant.

Because the increases in the BPA and related amounts would be eliminated for individuals with net incomes over $214,368 in 2020 (the threshold for the top tax bracket), the wealthiest Canadians would not benefit from this proposed change. Instead, they would continue to receive the existing BPA, which will continue to rise with inflation.

An increased BPA would mean lower taxes for close to 20 million Canadians. When fully implemented in 2023, single individuals would save close to $300 in taxes every year, and couples or single parents would save nearly $600 every year. It would mean that nearly 1.1 million more Canadians would no longer pay federal income tax at all.

Consequential Changes

A number of income tax rules that use the value of the BPA would be amended to refer to the maximum value of the credit, as described below. Other income tax rules that refer to the value of the BPA, such as the rules relating to the transfer of unused credit amounts, would continue to refer to the BPA (as reduced due to the income test, if applicable).

Certain provisions of the Income Tax Act rely on the value of the BPA to determine whether a child or grandchild is considered to be dependent upon another individual. This proposal would update those provisions to reference the new maximum credit amount (without reduction due to the income test), including for the purposes of

  • the Child Care Expense Deduction;
  • establishing eligibility to roll over proceeds from certain registered plans of a deceased parent or grandparent;
  • the definition “preferred beneficiary,” which is relevant to certain trust rules; and
  • the determination of the residency status of children dependent on certain individuals.

The Income Tax Regulations provide rules for the withholding of income tax from the taxable portion of amounts paid from a Registered Disability Savings Plan. The value of the BPA is used to determine the amount that may be paid from a Registered Disability Savings Plan before tax withholding is applied. This proposal would reference the new maximum BPA (without reduction due to the income test) when determining this amount.

Gender-Based Analysis Plus Summary of This Proposed Measure

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