Annual Income and Payroll Tax Updates for Individuals and Business Owners

This article provides an overview of 2023 updates to combined Federal and Ontario personal income tax rates (at the higher marginal tax brackets) and corporate income tax rates in addition to the prescribed rate and payroll deductions. Tax optimization planning for business owners and high net worth individuals can be extremely complex and requires professional tax advice. Please reach out to the Bateman MacKay tax experts for vital advice, tailored to your situation.

Ontario Combined Personal Income Tax Rates

The personal income tax rates below remained largely identical from 2022 to 2023, with only minor decreases in personal income tax rates for income between $165,430 and $235,675.

Ontario Combined Corporate Income Tax Rates

The combined Federal and Ontario Corporate Income tax rates did not change from 2022 to 2023. The general income tax rate remains at 26.5%, the Small Business Rate at 12.20% and the investment income tax rate at 50.17%.

One significant change commencing with 2023 corporate tax years, announced in last year’s Federal Budget, is the gradual reduction of the Small Business Deduction (SBD). The new SBD limit is reduced by $1 for every $80 of taxable capital in excess of $10 million, such that the limit will be more gradually reduced.  The SBD limit will then only be eliminated where taxable capital equals or exceeds $50 million. Previously, the small business deduction limit would be reduced when a corporation’s taxable capital was between $10 million and $15 million and eliminated beyond $15 million.

Prescribed Interest Rate

The prescribed interest rates below are in effect from January 1, 2023, to March 31, 2023. With sustained historically low interest rates in recent years, some individuals and corporations have delayed paying tax instalments with the intent of investing those funds to enjoy a higher rate of return than the cost of interest. Given such interest is non-deductible and the rate has become significantly higher, it is typically advisable that tax installments be paid on time (due monthly or quarterly depending on the corporation’s structure).

• The interest rate on overdue taxes increases to 8%
• The interest rate on non-corporate tax refunds increases to 6%
• The interest rate on corporate tax refunds increases to 4%.
• The interest rate to calculate taxable benefits for shareholders from interest-free and low-interest loans has recently increased to 4%.
• The interest rate on Prescribed Rate Loans increases to 4%.

Payroll Taxes

The Employment Insurance (EI) and Canada Pension Plan (CPP) rates have both increased in 2023. The EI rate has increased from 1.58% to 1.63% based on maximum annual insurable earnings of $61,500. Maximum annual employee premiums of $1,002.45 and a maximum annual employer premium of $1,403.43 are the results of these rate increases.

The CPP rate has increased from 5.7% to 5.95% for employees and employers and increased from 11.4% to 11.9% for self-employed individuals. Estimated maximum yearly contributions of $3,701 on earnings up to $65,700 are the result of these CPP rate increases. Looking ahead, Phase Two of the CPP Enhancement begins in 2024. In this phase, a second earnings ceiling will be implemented along with a second, lower rate that will apply to earnings between the first earnings ceiling and the new second earnings ceiling.