Basic personal amount
On December 9, 2019, the Government tabled a Notice of Ways and Means Motion that proposes to amend the Income Tax Act to increase the basic personal amount to $15,000 by 2023. The increase would be phased in starting in 2020.
Employers and payers who need time to implement these changes should refer to Question 7.
Question and answers
1. What is the basic personal amount?
The basic personal amount (BPA) is a non-refundable tax credit that can be claimed by all individuals. The purpose of the BPA is to provide a full reduction from federal income tax to all individuals with taxable income below the BPA. It also provides a partial reduction to taxpayers with taxable income above the BPA.
A non-refundable tax credit reduces what you may owe. However if your total non-refundable tax credits are more than what you owe, you will not get a refund for the difference.
2. What is the proposed change announced on December 9, 2019, to the federal basic personal amount?
In 2020, the maximum BPA is increased from $12,298 to $13,229 for individuals with a net income of $150,473 or less. The increase is gradually reduced for individuals with net income between $150,473 and $214,368. If your net income is above $214,368, the change does not apply to you. Your BPA will be $12,298.
In addition, the maximum BPA will be increased to $15,000 by 2023 as follows:
- $13,808 for the 2021 taxation year,
- $14,398 for the 2022 taxation year, and
- $15,000 for the 2023 taxation year, and indexed for inflation for subsequent years.
Individuals whose net income is too high to benefit from the increased BPA will continue to claim the existing BPA. This existing amount will continue to be indexed for inflation each year.
3. Will the new basic personal amount be indexed?
The increases to the BPA for 2020 to 2023 will be legislated, but for subsequent years the amount will be indexed. The level of net income at which the BPA increase begins to be phased out, and the level of net income at which it no longer applies, will be indexed each year beginning in 2020.
4. Will this change affect the Spouse or common-law partner amount or the Amount for an eligible dependant?
Yes, the changes propose to increase the maximum Spouse or common-law partner amount and the Amount for an eligible dependant, in tandem with the proposed increases in the BPA. These amounts will also be gradually reduced for individuals with net income above $150,473 in 2020, and will continue to be reduced dollar-for-dollar based on the net income of the dependant.
5. Will the amount of income tax withholdings reflected on my paycheque be affected?
Depending on your circumstances, there may be a reduction to the amount of income tax withheld on your paycheque.
6. When will the CRA update its forms and publications with this change?
T4127, Payroll Deductions Formulas, has been updated to reflect the new BPA.
In January 2020, the CRA will update Form TD1, 2020 Personal Tax Credits Return, and the accompanying worksheet, its Payroll Deductions Online Calculator (PDOC), T4032, Payroll Deductions Tables and T4008, Payroll Deductions Supplementary Tables to reflect the new BPA.
In addition, the changes will be included in the Federal Income Tax and Benefit Guide and the Income Tax and Benefit Return for 2020 and subsequent years. The return and guide for 2020 will be published early in 2021.
The CRA encourages employers and payers to check Canada.ca for more information.
7. What should an employer or payer do if they cannot make the system and procedure changes necessary to fully implement a BPA that changes depending on the individual’s net income right away?
For 2020, the CRA will administratively allow employers and payers to use a BPA of $13,229 for all individuals, until their payroll systems and procedures are updated to fully implement the proposed legislation.
The Payroll Deductions Online Calculator and Payroll Deductions Tables have been updated to reflect a federal BPA of $13,229 for 2020 with the reduction for individuals with net income above $150,473. However if you do not use these tools and use a BPA of $13,229 for all individuals, then higher income individuals (income above $150,473) who would not be entitled to the full amount can ask for additional tax to be deducted by completing Form TD1, 2020 Personal Tax Credits Return, and the accompanying worksheet and giving the completed form to their employer or payer.
For employers and payers using the administrative relief option, your federal tax calculations may not match the amounts determined on PDOC for individuals with net income above $150,473.
8. How will the individual, the employer or payer know the individual’s net income?
For determining payroll deductions, the employer or payer will use the information they have available, which would generally be the gross income they are paying less union dues, employee contributions to a registered pension plan and clergy residence deduction, if applicable.
Individuals completing Form TD1, 2020 Personal Tax Credits Return, and the accompanying worksheet can approximate their net income by estimating the amount they would include on line 236 of their 2020 Income Tax and Benefit Return.
9. What if an employer or payer has not changed their payroll system or processes starting with the first payment in 2020 and over-deducts or under-deducts income tax on the individual’s remuneration, pension or other income?
Employers and payers may not be able to make all the necessary changes to their systems right away. This could result in an over-deduction or under-deduction of income tax at source from the salary or other remuneration paid to the individual.
In the case of an over-deduction, employers and payers can reimburse the individual in the year for the excess amount of income tax deducted, adjust the individual’s records to show the correct income tax deducted and reduce a future remittance to the CRA by the reimbursed amount. If the employer or payer does not reduce the amount of income tax deducted, individuals will be credited or refunded any excess amount when they file their 2020 income tax and benefit return.
In the case of an under-deduction, the individual’s balance owing or refund amount will be determined when they file their 2020 income tax and benefit return.
10. Where can I get more information on this change?
The CRA is committed to providing taxpayers with up-to-date information. Check Canada.ca regularly for more information.
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