2023 tax season: What you need to know

Michael Callahan, CFP, CIM

It’s that time of year again, and the deadline for filing your 2022 taxes is just around the corner. For most individuals, the deadline for filing your 2022 taxes is April 30th, 2023. However, if you or your spouse or common-law partner is self-employed, the tax-filing deadline is extended to June 15th, 2023. Although the tax-filing deadline is June 15th for those with self-employment income, any balance owing must still be paid by April 30th, 2023. Furthermore, given that April 30th falls on a Sunday this year, your tax return will be considered filed on time if it is postmarked or received by the Canada Revenue Agency (CRA) on or before May 1st, 2023. If you owe money, your payment is due on April 30, 2023. Your payment will be considered on time if the CRA receives it, or a Canadian financial institution processes it, on or before May 1, 2023.

With that in mind, let’s take a look at some tax basics, and some of the most common deductions and credits available to help you manage your taxes.

Total income and taxable income

Your income can come from a variety of sources and can vary considerably from one year to the next. Some of the more common sources include salary, bonus, and commissions from an employer, business income for those who are self-employed, royalties from books, music, or art, pension income from employer pension plans or government programs such as Canada Pension Plan (CPP) and Old Age Security (OAS), and investment income in the form of interest, dividends, or capital gains.

Regardless of which sources of income you have, the sum of all sources forms your total income. However, your total income is not always the same as your taxable income – which is the amount of income on which income tax is paid. This is because income tax deductions help reduce the amount of income subject to tax, thereby lowering your taxable income. Depending on your situation, there may be various income tax deductions available which can help lower your taxable income, thereby lowering your overall income tax liability.

For example, if your total income was $50,000 and you had a $4,000 tax deduction, your taxable income would therefore be $46,000. That is, although you would have made $50,000, only $46,000 would be subject to income tax.

Tax deductions and tax credits

It's important to note that a tax deduction is not the same as a tax credit. These terms are often confused and used interchangeably, but there is an important distinction between tax deductions and tax credits. As described above, a tax deduction reduces your total income to arrive at your taxable income. This happens before the calculation of your taxes owing.

Once you determine your amount of taxes owing, any available tax credits can then be applied to this amount in order to reduce your tax bill accordingly. In essence, a tax deduction applies to your income before taxes are calculated, whereas a tax credit applies to the amount of income tax owing after your taxes are calculated.

For example, if your income tax owing was $3,000 and you had a $500 tax credit, you would then only have to pay $2,500 after the $500 credit was applied.

Furthermore, note that income tax credits can be either refundable or non-refundable. Non-refundable tax credits can potentially reduce your taxes owing to $0 but have no value beyond that – any additional amount remaining is not paid to you. The majority of income tax credits are non-refundable. On the other hand, refundable tax credits can result in a refund if your income tax owing has been reduced to $0 and there is still a credit remaining.

For example, if you owed $1,000 income tax and had a $1,200 non-refundable credit, you wouldn't have to pay any income tax, but you also wouldn't receive a refund either. If, however, the $1,200 credit was refundable, you would also receive a $200 refund.

Common income tax credits for the 2022 tax year

Income tax credits are available at both the federal and provincial level, and depending on your personal situation, different credits may be available in addition to those mentioned here. Some of the more common federal non-refundable tax credits include:

• Basic personal amount: $14,398 – Every individual who is a resident of Canada and has income less than $155,625 can claim an amount. Partial claim available to those with income higher than $155,625.
• Age amount: $7,898 – Available to those who will be 65 or older on December 31, 2022, with net income less than $39,826. (Reduced amounts available for higher incomes).
• Pension income amount: $2,000 – Those receiving regular pension payments from a pension plan or fund (excluding CPP, QPP, OAS, or GIS) may claim the lesser of $2,000 or annual pension received. The pension income amount is also available to individuals age 65 or older receiving regular income from an RRSP or RRIF.
• Spouse or common-law partner amount: $14,398 – Available to those who support a spouse or common-law partner with no income. Income between $1 and $14,398 results in a partial claim. Additional amount available if the spouse or common-law partner is infirm.
• Tuition amount (full-time and part-time students): Individuals may claim the total amount of tuition fees paid at a qualifying institution.
• Disability amount: $8,870 – Available only to those who qualify for the Disability Tax Credit.

Examples of federal refundable tax credits include the GST / HST tax credit, and the working income tax benefit. Please note that some credits have additional caveats and income thresholds. Furthermore, depending on your own personal circumstances, other credits than those mentioned here may also be available. For more information, please see the 2022 Personal Tax Credits Return from the CRA.