What’s new in the new year
From a TFSA bump to a dental benefit, there’s something for everyone to help save more, deal with rising costs
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If you’re looking to save for a first home, or to just put more money aside to grow tax-free for the future, 2023 offers a host of new or expanding tax and benefit programs.
Here’s a look at three notable new programs or changes to existing ones.
Help buying a home
The Tax-Free First Home Savings Account (FHSA) is arguably the most notable new program starting in 2023. Officially, it will not be available until April, but the program offers Canadians aiming to buy their first home the ability to save $8,000 a year to a maximum of $40,000 for their lifetime.
Contributions are tax deductible and can grow tax-sheltered like an RRSP (Registered Retirement Savings Plan). As well, withdrawals to purchase a home are tax-free like a TFSA (Tax-Free Savings Account). Certified financial planner Ian Wood says the program announced last spring was finalized at the end of 2022 and included a few notable changes from the original draft.
“Added into the final legislation is that it allows first-time buyers to use both the FHSA and the Home Buyers Plan,” says Wood, vice-president at Cardinal Capital Management Ltd. in Winnipeg.
“Under the original proposal, you had to pick one or the other.”
Now, first-time buyers can save using the FHSA and borrow up to $35,000 from their RRSP under the Home Buyers Plan, providing “a pretty decent down payment for a home in Winnipeg,” he adds.
Also of note, if individuals do not use all or any of the money in the FHSA to purchase a first home, it can be rolled into their RRSP without tax consequence or impact on RRSP contribution room.
Overall it’s an ideal go-to savings option for young adults.
“When you consider the tax-efficient order of investing, for anyone that qualifies for the FHSA, it would be the first place to contribute money even if they have no plan to buy a house,” he says.
The reason being here is that contributions offer that tax deduction, and if the money goes unused for a home purchase, it can be repurposed for retirement savings, Wood adds.
More money in the TFSA
High inflation has few upsides, but an increase in the TFSA’s annual contribution is indeed one of them. This year, due to inflation, the annual contribution to the account increased to $6,500 from $6,000. In total, Canadians who were at least 18 years old in 2009 — the year the program launched — now have $88,000 in lifetime contribution room.
“TFSAs are a good savings tool if you want to put money aside, but you’re not sure if it makes sense to contribute to an RRSP,” says Bruce Ball, Toronto-based vice-president of taxation at CPA (Chartered Professional Accountants) Canada.
The TFSA is the most flexible of all government registered savings accounts, allowing for tax-free growth and withdrawals at any time. As well, any sum withdrawn results in a corresponding replacement in contribution room the following year.
One challenge for younger adults, though, is figuring out their maximum contribution room, Wood notes. “Anybody born after 1991 needs to do some math to figure out what their contribution limit is” if they haven’t started contributing already.
Individuals’ Canada Revenue Agency (CRA) online accounts do track annual contributions and lifetime contribution room. Yet typically, the government takes time to include contributions and withdrawals that took place in the previous year, Wood adds.
“So it could be March before it (your CRA account) is accurate.”
Help with dental care
Another new program is the Canada Dental Benefit — or at least an interim version of it until the full program is launched in 2025. Providing money from the federal government for lower income families’ dental costs for children under age 12, the benefit actually launched late last year. It provides up to two tax-free benefits to a maximum of $650 each, depending on adjusted family net income (after taxes and deductions).
Families earning less than $70,000 annually can receive the maximum payment for a child under age 12 as of Dec. 1 last year for dental care provided between Oct. 1, 2022, and June 30, 2023. They can also qualify for a second payment between July 1 and June 30, 2024.
Each child in a household is eligible for two benefit payments so long as they meet the age criteria (under 12). Ball notes the program has an online application process, and the government of Canada “has pretty good resources to help guide people through it.”
Families earning between $70,000 and $90,000 also qualify — but for a reduced benefit.
Those earning $70,000 to $79,999 receive $390 per child, while those earning $80,000 to $89,999 receive $260.
Ball notes families can apply retroactively for costs incurred from Oct. 1 to the end of 2022, or in advance of dental appointments in 2023. “Provided that the eligibility is met and the child does have the appointment during the required time, the benefit is not limited if the actual dental cost is lower.” In other words, if the benefit exceeds the cost, families will not have to repay the tax-free benefit.
But they are required to keep receipts to prove they did incur dental costs, he says.