If you are a taxpayer in Canada, you might be aware of the Basic Personal Amount (BPA). The BPA is the amount of income that is tax-free for every Canadian taxpayer. It is a deduction that is automatically applied to your tax return by the Canada Revenue Agency (CRA). In this article, we will discuss everything you need to know about the Basic Personal Amount, including its definition, how it works, and how it can impact your taxes.

Definition of Basic Personal Amount

The Basic Personal Amount is a non-refundable tax credit that all Canadian taxpayers can claim. It is designed to ensure that low-income earners do not pay tax on their basic necessities. The amount is adjusted annually for inflation, and for the tax year 2021, the BPA is $13,808.

How Does the Basic Personal Amount Work?

The Basic Personal Amount is applied to your taxable income, which is the amount of income you earn after deductions, such as RRSP contributions and pension adjustments. The BPA reduces the amount of tax you have to pay on your income. The higher your taxable income, the more tax you will save with the Basic Personal Amount.

For example, if your taxable income is $50,000, your Basic Personal Amount of $13,808 will be subtracted from your income, leaving you with $36,192 of taxable income. This will result in a lower tax bill than if you did not have the Basic Personal Amount.

Impact of Basic Personal Amount on Your Taxes

The Basic Personal Amount can have a significant impact on your taxes. By reducing your taxable income, you can save money on your taxes. For example, if you have a taxable income of $100,000, your tax bill would be $22,679 without the Basic Personal Amount. However, with the Basic Personal Amount of $13,808, your taxable income would be reduced to $86,192, and your tax bill would be reduced to $19,389.

It is important to note that the Basic Personal Amount is a non-refundable tax credit. This means that if your tax bill is lower than the amount of your Basic Personal Amount, you will not receive a refund for the difference.

Claiming the Basic Personal Amount

Claiming the Basic Personal Amount is easy. When you file your tax return, the CRA will automatically apply the BPA to your taxable income. You do not need to fill out any additional forms or provide any additional information to claim the credit.

If you are eligible for additional tax credits, such as the Canada Child Benefit or the Disability Tax Credit, the Basic Personal Amount can increase the amount of these credits that you are eligible to receive.

Conclusion

The Basic Personal Amount is an essential tax credit for Canadian taxpayers. It reduces the amount of tax you have to pay on your income, providing relief to low-income earners. By understanding how the Basic Personal Amount works, you can take advantage of the credit and save money on your taxes.