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Important TAX CHANGES in CANADA for 2023 | TFSA, RRSP, FHSA, CPP

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In this article, I will be covering the new contribution limits for TFSA, RRSP, the new highly anticipated FHSA (Tax-Free First Home Savings Account), CPP, as well as changes in the tax brackets.

To give you a refresher, I will also be giving a brief background on the purpose, eligibility, contribution limits, as well as withdrawal rules so you can really take advantage of the various tax savings and retirement accounts.

And by being informed of the new changes, you can plan ahead and make the most of the 2023 new year. So let’s get started:

| Tax-Free Savings Account (TFSA)


The tax-free savings account is a tax-sheltered investing account that was first released in 2009, that is flexible and can be used towards any savings goals you have.

In a TFSA, you invest your money and earn income like interest, dividends, and capital gains tax-free. Typically if you invest in a taxable account, you are subject to tax on your earnings every year - so the compounding tax savings on your investments in your TFSA can be significant over time.


You are eligible for a TFSA if you are a Canadian resident who is 18 years and older with a valid Social Insurance Number (SIN).

Contribution room

How much you can contribute to your TFSA is determined by your contribution room, which grows every year by the TFSA annual room limit.

As you can see here, the 2023 TFSA annual room is indexed to inflation and increased by $500, the first increase since 2019.

Your TFSA contribution limit accumulates over time and any unused room is carried forward, so it doesn’t disappear. For example, if you are born in years 1991 or earlier, your cumulative TFSA room is $88k.


The great thing about TFSAs is that you can withdraw from it anytime without any penalties - the only catch is that withdrawals made will be added back to your TFSA room the following year.

For example, let’s say you are born in 2005 and have a contribution room of $5000. You contributed the full $5k in Feb 2023, and then later withdrew the $5k in June 2023. This means you can’t re-contribute the full $5k until the following Jan 2024 when you have maxed out your TFSA room in 2023.

|Registered Retirement Savings Plan (RRSP)


The RRSP is a registered account with the Canadian government with the purpose to save towards your retirement.

In an RRSP, you invest your money and earn income like interest, dividends, and capital gains on a tax-deferral basis. This means that income grows in your RRSP tax-free but you are taxed on that income when you eventually withdraw from your RRSP, ideally when you retire.

Typically if you invest in a taxable account, you are subject to tax on your earnings every year - but in an RRSP, your investment income doesn't get taxed and can grow tax-free.

You might want to contribute to an RRSP vs. a TFSA. The greatest tax advantage of an RRSP is that contributions you make are tax-deductible, which reduces your taxes, and potentially even receive a tax refund.


You are eligible to open an RRSP if you are a Canadian resident with a valid Social Insurance Number (SIN). There is no minimum age but you can’t contribute after the age of 71.

You must also file a tax return and have earned income, which is income from a job or your business. Dividends and Capital gains are not considered to be “earned income”

Contribution room

How much you can contribute to your RRSP depends on your contribution room, which is determined by the lesser of the:

  • 18% of earned income in the previous year or

  • Annual RRSP limit (for 2022, the annual limit is 29,210)

So let’s say that you earned $70k in 2021, this means your RRSP limit in 2022 is the lesser of:

  • 18% x 70k = $12,600 OR

  • $29,210 (2022 Annual limit)

Since the lesser amount is $12,600, your RRSP limit is $12,600 for 2022. Meaning, if you contribute the full $12,600, you can get a tax deduction, reducing your taxable income on your 2022 tax return from $70k to $57,400.

Alternatively, if you earned $200k in 2021, your RRSP limit is the lesser of the:

  • 18% x 200k = $36,000 OR

  • $29,210 (2022 Annual limit)

In this case, the lesser amount is $29,210, so this is your RRSP limit. For 2023, the annual limit has increased to $30,780, which is indexed for inflation.

If you don’t contribute to your RRSP or if you haven’t maxed out your RRSP room, your RRSP limit gets carried forward and accumulates so you can contribute in the future.


Perhaps the biggest disadvantage to an RRSP is that you get taxed on withdrawals. It relies on the assumption that your taxable income will be lower when you retire, so you will be subject to lower tax rates.

You can technically withdraw from your RRSP at any time, as long as it's not a locked-in type. But, the biggest catch is that you will also be hit with a withholding tax rate of the following amounts withdrawn:

  • amounts up to $5,000 – 10% withholding tax

  • amounts over $5,000 up to $15,000 – 20% withholding tax

  • amounts over $15,000 – 30% withholding tax

Though the withholding tax is not your final tax - your withdrawals will be added to your taxable income and the final tax impact will depend on your marginal tax rate. The withholding taxes you paid will be used as a credit towards your final tax bill.

|Tax-Free First Home Savings Account (FHSA)


The federal government is releasing a new type of savings plan aimed at helping Canadians save for their first home. Perhaps the most exciting feature of the FSHA is that it combines the best parts of the TFSA, from which you can withdraw from it tax-free, and RRSP, from which you can get a tax deduction for your contributions.

It was proposed in the 2022 Budget and assuming the bill will be passed, it will enter into force on April 1, 2023.


You are eligible for the FHSA if you are a Canadian resident who is at least 18 years old. You also need to be a first-time home buyer, which means that you didn’t own a home that you lived in during the year the account is opened or the past 4 years.

Contribution room

The contribution limit is maxed out at $40k over your lifetime and up to $8k in any given year. That means that you can max out your FHSA by contributing $8k per year over 5 years to reach the $40k limit.

When you open your FHSA, you can also carry forward the unused contributions to use in a later year.


You can withdraw from your FHSA tax-free if it's used towards a qualifying home purchase, which means:

  • You are a first-time home buyer

  • You have a written agreement to buy a home before Oct 1 of the following year of withdrawal, and intend to live in the home as a principal place of residence within one year of buying it

  • The home is located in Canada.

The main difference between the FHSA and the Home Buyer’s Plan is that your withdrawal is $40k vs. $35k - which means you can withdraw $5k more tax-free under the FHSA. In addition, you are not required to pay back the $40k under the FHSA, whereas, under the HBP, you would need to pay back the withdrawn funds within 15 years, otherwise the amount gets included in your income.

If you have enough savings, you can also take advantage of both the FHSA and HBP to take advantage of tax-free withdrawals towards your first home.

|Canadian Pension Plan (CPP)


CPP is a pension available to Canadians when they retire that pays out a monthly, taxable benefit. You can start receiving CPP when you are at least 60 years old until the rest of your life.

“For 2022, the maximum monthly amount you could receive as a new recipient starting the pension at age 65 is $1,253.59. The average monthly amount paid for a new retirement pension (at age 65) in July 2022 is $737.88.”

However, to receive this benefit when you retire, every person over the age of 18 who works in Canada and earns a minimum of $3,500 per year must contribute to the CPP.


How much you contribute depends on your employment income. You may have noticed CPP as one of your deductions from your paycheck - and while it may feel like another “tax,” it's money you will see back when you retire. In fact, your employer also contributes towards your CPP.

In 2023, the CPP contribution rate increased to 5.95% of your earnings from 5.70% in 2022. That means both you and your employer contribute to your CPP at a combined rate of 11.9% of your earnings. However, if you are self-employed, your business is responsible for making both payments or the full 11.9%.

There is also a ceiling with CPP, where you make contributions between your annual earnings of a minimum of $3,500 to a maximum of $66,600 in 2023. That means maximum CPP contributions are $3,754.45 for employees and $7,508.90 for the self-employed.

Any earnings after the maximum of $66,600 are not subject to CPP, and if this applies to you, you will notice your pay bump up part-way through the year when you no longer need to make CPP contributions after you have reached the maximum amount. And if you end up contributing more than the maximum, you will be refunded the excess contributions when you file your tax return.

|Tax Brackets

Lastly, we will be going over the tax brackets and any changes to the tax rates.

As a Canadian resident, you will be subject to two separate tax rates: federal and provincial/territorial.

Before we jump in, we need to understand two components to read the rates. The first is the tax bracket, which is the range of income you are subject to tax on. Each tax bracket is subject to a set tax rate, which calculates your tax liability in each bracket. So to put it in other words, everyone who earns up to the first tax bracket of $53,359 will be taxed the same 15%.

If you earn more, your next set of income will be taxed on the second set of tax-rate of 20.5%, and so on.

To really hit home, if you earn $70k, your first $53,359 is taxed at 15% resulting in taxes of $8,008.85, and the remaining $16,641 (ie. 70k - 53,359) is taxed at 20.5%, resulting in taxes of $3,411.41. You would owe total taxes of $11,415.26 (ie.$8,008.85 + $3,411.41), before any tax deductions or credits.

This is a progressive or graduated tax system, where your income is taxed incrementally based on the tax bracket you fall under.

And to easily calculate the tax impact of any additional income you will earn over $70k, by your marginal tax rate of 20.05%. That means if you earn an additional net income of $10k from a side hustle, you will need to pay 2005 in additional taxes (up to the next tax bracket of $107,717).

Now, going over the federal tax rates, there is good news with the tax brackets being more favorable to Canadians. You can see that the tax brackets have increased from $50,197 to $55,359 - which means the difference of around $3k of taxable income will be taxed at a lower rate of 15% in 2023 compared to 20.5% in 2022.

In fact, all the tax brackets will have a lower tax impact as even the highest tax bracket has shifted by almost $14k to $235,676 in 2023 compared to $221,708 in 2022.

In the second highest tax bracket, the rates had even reduced from 29.38% in 2022 to 29.32%.

As for provincial rates, it would depend on where you live. By using BC as an example, you can see that similarly, the tax brackets have increased so it's more favorable to Canadians where they will pay fewer taxes on more income.

And since it's confusing to look at two separate tax rates, I like to look at the combined federal and BC rates, like this one, that shows you your total tax impact.

While the tax brackets have shifted, the tax rates stayed more or less the same, with the highest marginal tax rate sitting at 53.5%.


As an employee, there is a limit to what you can deduct from your income so if you are a high-income earner from a job, there is no major way of reducing your tax liability other than RRSP and charitable donations.

However, as a business owner, there are more options when it comes to tax deductions and tax planning opportunities so you don’t end up paying 53.5% of your hard-earned money in taxes.

If you would like a free guide on the top 10 tax write-offs for small businesses, visit here.

And if you are a small business owner in Canada and would like help with your taxes, get in touch and set up a Discovery Call - click here.

Disclaimer: Note this post is not financial nor accounting/tax advice and should be used for entertainment purposes only. Consult with your own financial advisor, accountant and/or tax advisor for specific advice related to your business situation and needs.

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