The Tax-free Allowance in Canada has been Increased. Here’s What You Need to Know

Tax free allowance in Canada 2021

Good news for Canadian taxpayers. The basic personal tax-free allowance has increased to $13,808 in 2021. But are you entitled to claim the credits?

As a non-resident in Canada, you must pay taxes on income received from Canadian sources.

Both residents and non-residents in Canada are entitled to claim the basic personal amount (tax-free allowance) on their income tax return as a non-refundable tax credit.

If you are eligible for the credit, you are entitled to earn $13,808 (2021) in tax-free income in Canada. Taxpayers start paying taxes when their income exceeds the tax-free threshold.

In this guide, you will find everything you need to know about the increased basic personal amount.

So, what’s changing?

In 2020, the basic personal amount was $13,229. The good news for taxpayers in Canada is that this amount has been increased by $579, to $13,808, in 2021.

What’s more, the Canadian government has hinted that the tax-free threshold will continue to increase until at least 2023.

Year Existing BPA Proposed BPA
2020 $12,298 $13,229
2021 $12,554 $13,808
2022 $12,783 $14,398
2023 $13,038 $15,000

How much money will taxpayers save?

It is estimated that single individuals will save approximately $200. Meanwhile, couples (without kids) can expect to be $467 better off.

An average Canadian family could save around $585 a year and single-parent families will save $336 in annual taxes.

The new measures are likely to lower taxes for approximately 20 million Canadians. However, those that earn more than $210,371 will not benefit from the tax breaks.

Family type Reduction in family’s annual taxes
Single person family $189
Couples with children $573
Couples without children $467
Single parent family $336

The Basic Personal Amount in 2021

In 2021, Canadians can claim the full $13,808 credit, if their income is below $151,978 or the 29% tax bracket.

The threshold reduces if your income is between the 29 and 33% ($216,511) tax brackets.

The maximum credit amount is $12,421 for an individual taxpayer whose income exceeds $216,511.

The basic personal amount is projected to increase in 2022 and 2023 by $590, so taxpayers can expect less annual taxes in the coming years.

How do I know if I am entitled to tax credits in Canada?

TD1 is one of the most important tax forms for people starting employment in Canada. It is used to calculate the correct amount of tax that must be deducted from your employment income and to determine if you are eligible for tax credits in Canada.

If you are an international student or working holidaymaker in Canada, you must complete the section on page 2 regarding non-residents.

It’s important to note that not everyone is entitled to claim these tax credits.

In short, if at least 90% of your income for a particular tax year was earned from Canadian sources, you can claim tax-free income in Canada for this tax year.

However, you are not eligible for personal tax credits if you earned more than 10% of your income from sources outside Canada during the tax year.

tax form used in Canada

Who can help me file my tax return?

Many individuals pay too much tax without even realizing it. If you overpaid taxes in Canada, you will be entitled to a tax refund. The average tax refund with Taxback is $998.

You can apply for your tax entitlements by filing a tax return to the CRA yourself.

But if you want to leave the tricky tax paperwork to someone else, you should contact Taxback.

They will make sure that you avail of every expense that you are entitled to so that you get the maximum legal tax refund.

They have more than 20 years of experience claiming tax refunds on behalf of our customers.

Their team of tax experts are ready to answer your questions and help you 24/7.

Why choose Taxback?

Here’s why:

  • Their team will ensure you avail of every expense and relief you are entitled to
  • They will transfer your maximum legal tax refund straight to your bank account
  • No refund, no fee policy
  • It’s a convenient online service. They do the work. You get the cash!
  • Got tax questions? Their live chat team are on hand 24/7 to support you

Want to claim a tax refund from Canada?

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