Moore
January 2020 Newsletter

The Federal basic personal credit is a non-refundable tax credit. (“Non-refundable” means that it’s not paid to you if you have no tax to pay for the year. It can create a refund of tax withheld at source or that you paid by instalments.)

Every individual is entitled to the credit, which equals 15% multiplied by the “basic personal amount”, which is indexed annually for inflation. For your 2019 return, the credit is 15% of $12,069. The 15% rate, which is equal to the lowest Federal marginal tax rate, was chosen to ensure that everyone is treated the same regardless of their tax bracket; that is, until 2020, as discussed below.

The basic personal amount will continue to be indexed for inflation, as was the case before. Therefore, in 2020, the basic personal amount is $12,298, and will continue to be indexed thereafter. Based on its projections, the government estimates that the 2021 through 2023 amounts will equal $12,554, $12,783, and $13,308, respectively.

An additional enhanced basic personal amount applies to all individuals whose net income is less than the amount at which the 29% marginal federal tax rate begins to apply ($150,473 for 2020). For these individuals, the enhanced basic personal will be $13,229, $13,808, $14,398, and $15,000 for taxation years 2020 through 2023, respectively (and the credit will continue to be 15% of this amount).

For individuals whose net income is in the top tax bracket where the marginal federal tax rate is 33% (net income over $214,368 for 2020), the enhanced credit is not available, and the basic personal amount remains at $12,298 for 2020 (and indexed after that).

For individuals in the 29% tax bracket (net income between $150,473 and $214,368 for 2020), the enhancement to the credit is gradually phased down to zero as net income approaches the top of that bracket ($214,368 for 2020).

(Interestingly, the income limits at which the enhanced credit is phased out or eliminated are based on net income, and not the (sometimes lower) “taxable income”, even though the tax rates themselves apply to taxable income.)

Examples for 2020

If your income is $214,368 or greater, you get only the regular credit of 15% x $12,298. You do not get the enhanced credit.

If your income is $150,473 or less, you qualify for the entire enhanced credit of 15% x $13,229.

If your income is $182,420, which is half-way into the 29% tax bracket, you get the regular credit of 15% x $12,298, plus one-half x 15% x ($13,229 − $12,298), which equals a total of 15% x $12,763.

The enhanced credit amount will also apply to the spousal or common-law credit, with the same income limits for the person claiming the credit. As before, the credit amount for the person claiming the credit is reduced by the dependant spouse or common-law partner’s income. Thus, for example, if your income qualifies you for the enhanced credit amount in 2020 but your spouse’s income is $13,229 or more, you get no spousal credit. If your spouse’s income is between zero and $13,229, the spousal credit is pro-rated.

Similar amounts and rules to the spousal credit apply to the eligible dependant credit, which you may claim if you are not married or in a common-law relationship, but have a related individual like a minor child living with you (certain other conditions apply).

Last modified on January 10, 2020 12:00 am