2022 Small Business Corporate Income Tax Changes

 

2022 corporate income tax rates for active business income limit $500,000:

• Federal: 9%
• BC: 2%

2022 corporate income tax rates for investment income:

• Federal: 38.7%
• BC: 12%

The federal business limit of $500,000 begins to be reduced when a CCPC’s taxable capital reaches $10 million, and is eliminated when taxable capital reaches $15 million.  This phase-out of the small business deduction is also in effect in some provinces. In January 2019, new rules came into effect regarding the corporate tax rate on investment income. If your passive investment income passes the current threshold of $50 000 in a year, the tax rate on your corporation’s ordinary business income increases.

2023 Canada Pension Plan (CPP) Maximum Pensionable Earnings

The CPP maximum pensionable earnings for 2023 is $66,600, up from $64,900 in 2022. The maximum employer/employee contribution is $3,754.45 and $7,508.90 for self-employed with the rates at 5.95% & 11.90% respectively.

2023 Personal Tax Changes

 

Basic Personal Amount

Effective January 1, 2023, the Basic Personal Amount has been increased to $15,000 from $14,398 in 2022.

Tax-Free First Home Savings Account (FHSA)

In Budget 2022, the government proposed the introduction of the Tax-Free First Home Savings Account (FHSA). This new registered plan gives prospective first-time home buyers the ability to save $40,000 on a tax-free basis. Like a Registered Retirement Savings Plan (RRSP), contributions would be tax-deductible, and withdrawals to purchase a first home—including from investment income—would be non-taxable, like a Tax-Free Savings Account (TFSA).

Budget 2022 announced key design features of the FHSA, including an $8,000 annual contribution limit in addition to a $40,000 lifetime contribution limit. Today, the Department of Finance is releasing for public comment draft legislative proposals that provide additional details on the design of the FHSA. This backgrounder offers a summary of these details.

The government expects that Canadians will be able to open and contribute to an FHSA at some point in 2023. No matter when this happens in 2023, Canadians would be allowed to contribute the full $8,000 annual limit in that year. 

Lifetime Capital Gains Exemption (LCGE)

The lifetime capital gains exemption (LCGE) amount on the sale of qualifying small business shares is rising to $971,190 in 2023, up from $913,630 in 2022.

2023 RRSP Contribution Limits

For the 2023 taxation year, the RRSP contribution limit would be a maximum of $30,780 and $31,560 for the 2024 taxation year. You can carry forward the RRSP contribution room that you are unable to use in any particular year.

2023 TFSA Contribution Limit

The TFSA contribution limit for 2023 is $6,500.