Even for Canadians who feel they have a decent salary, more than two-thirds are worried about the cost of living and making ends meet, reveals a new study commissioned by H&R Block. For 79% of Canadians, cost of living increases make it difficult to afford everyday expenses; such as groceries, gas, and basic household essentials, and 85% say their income isn’t keeping pace with inflation. Beyond everyday costs, more than half (58%) of Canadians are worried about interest rate increases affecting their ability to pay off debt such as credit cards, loans, and mortgage payments. In addition to reining in spending, 28% have taken on a side hustle or gig work, looking to boost their income, and a further 15% are thinking about a side hustle in the future.
At a time when Canadians are even more reliant on a tax refund and minimizing any money owed, H&R Block points to the many new and updated tax credits and deductions available to help offset cost of living increases.
“Canadians are reacting to inflationary and interest rate pressures with a push-pull mindset. Many are looking to curb their spending and seek out additional sources of income,” said Peter Bruno, President, H&R Block Canada. “More than ever, Canadians are relying on a tax refund to help ease their financial situation. The good news is there are many new and updated tax credits and deductions. But our research shows that Canadians are struggling to navigate these changes based on their personal situation and understanding their eligibility.”
Rent or mortgage payments sucking up disproportionate amount of income: The general rule of thumb is that monthly housing costs (rent or mortgage payments with related tax and utility bills) shouldn’t exceed more than 30% of gross income. However, the study reveals that nearly half of Canadians (47%) report spending more than this on their rent or mortgage payments alone, with 15% paying 40-49%, and 14% paying more than 50% of their monthly income on these costs.
Many anticipate a tax return but nearly two-thirds struggle to understand new tax credits: The study indicates that around two-thirds (66%) of Canadians don’t feel they have a good understanding of how all the new tax credits might apply to them. Despite this, there’s a lot of optimism around refunds, with 41% of Canadians saying they expect a refund this tax season. Many Canadians (40%) are relying on a tax refund due to the financial pressures they face. One-in-three (33%) report having no idea whether they’ll owe money or get a refund, and 39% anticipate they’ll need to pay taxes.
Divided over having a tax nest egg: Nearly half (49%) of Canadians say they don’t have money set aside if they owe money this tax filing season, versus 45% who have created a tax nest egg, and 6% who say they aren’t sure if they have enough money put aside.
Conservative approach on how to spend their tax refund: Of those that anticipate a tax refund, most Canadians plan to use it to keep up with everyday cost of living expenses. This includes 30% who plan to use it to pay down debt or their credit card balance; 29% plan to use it to pay for everyday essentials; 24% to pay off bills; 20% to start a rainy-day fund, and 20% who plan to invest it in a TFSA, RRSP or RESP. However, 13% plan to use it towards a vacation and 10% plan to splurge on treating themselves or a loved one.
“The call-out to all Canadians is to file your taxes as soon as possible to make sure you have the runway to fully understand all the new benefits and credits available to you this tax season.,” said Mr. Bruno. “Last year, $37 billion was put back into the pockets of Canadians through tax refunds. That number could be even higher this year.”
Key tax filing changes this season will help put money back into Canadians’ pockets: Many new measures and changes to tax credits will help offset the increased costs of living are available to eligible Canadians, including:
- Top up to the Canadian Housing Benefit. A tax-free payment of $500 is available to Canadian families with income below $35,000, or below $20,000 for single Canadians who pay at least 30% of their income towards rent.
- Quarterly Canada workers benefit (CWB): A refundable tax credit that tops up lower income Canadians, providing up to $1,428 for single workers and up to $2,461 for a family.
- New Canada Dental Benefit: Up to $650 can be claimed for parents or guardians of children 12 years or under without dental coverage and an annual family income under $70,000.
- Income tax brackets changes: Shifts in tax brackets means good news for many Canadians who may find themselves in a lower tax bracket, which means paying less income tax.
- Basic Personal Amount (BPA) increased: Every Canadian filing taxes can claim the BPA, which is adjusted to inflation and other factors. For this tax season it increased to $14,398, which means every tax filer gets an uplift on their tax return.
- TFSA and RRSP limits increased: The limit for Tax Free Savings Accounts increased to $6,500; for Registered Retirement Savings Plans the limit increased to $31,560 (or capped at 18% of your income). This means Canadians can put more money into savings while reducing taxable income.