As you know, the major purpose for the basic personal amount (BPA) is to help all Canadians cover their most basic needs and do not impost any income taxes on it. Each year, the BPA index is inflated with a 1.9 percent inflation rate. As the government announced that moving forward the BPA will be gradually increased to $15,000 by 2023. The goal is to fully implement the BPA inflation-adjustments in 2023.
Basic Personal Amount Change
In 2019, the certain amount of basic income was $12,069. Behind this number, there are nearly 27 million taxpayers claimed the BPA according to the most recent year publicly available data. As the BPA continues to inflate, the new BPA will be $ 13,229 in 2020, and rise to $13,808 in 2021 and $14,398 in 2022.
However, the crucial mission is to ensure the tax relief will go to people who need help with their daily lives, meaning that the wealthiest Canadians would not benefit from this proposed change. The high-income taxpayers would continue to pay federal taxes according to the tax brackets besides receiving the BPA.
Federal Tax Brackets for 2020
There are still five tax brackets in 2020, and break down as the following: $0 to $48,535 of income (15 percent); above $48,535 to $97,069 (20.5 percent); above $97,069 to $150,473 (26 percent); above $150,473 to $214,368 (29 percent); and any amount above that would be taxed at 33 percent. For provincial taxes, they are subject to the respective provincial indexation factors with only slightly differences.
Canada Pension Plan Contributions
Mentionable, the CPP rates for employees and employers will both increase to 5.25 percent in 2020 (5.1 percent in 2019). This means for self-employers the rate will sum up to 10.5 percent. The rate change has considered the growth in the wages and salaries in 2019. Government also sets up the ceiling for the pensionable earnings – maximum $58,700 for 2020.
Employee Insurance Premium Rate
For 2020, the EI rate is dropped to 1.58 percent (from 1.62 percent in 2019) of the insurable earnings, up to a maximum level of $54,200. The same as before, employees must pay employment insurance premiums while employers paying 1,4 times the amount of the employee’s portions. All provinces have similar rules except residents of Quebec, because they have a different system of parental insurance plan.
In brief, the biggest change for 2020 will be the increase to the basic personal amount before the federal income tax, which significantly increases the maximum possible earnings to meet Canadians’ daily spending.