The cost of living is steadily rising, and the government wants to ensure Canadians are not struggling to make ends meet. To help with this, the CRA provides numerous tax credits that lower personal taxes for individuals. However, many wonder if these personal tax exemptions are linked to inflation in Canada.
In Canada, the largest non-refundable tax credit is the personal amount. As of 2021, the personal tax amount for federal taxes is $13,808. It is important to note that Canadian taxpayers can only use 15% of this non-refundable tax credit.
When Canadians are paying taxes, the personal amount tax credits help to reduce the amount of taxes they owe. But are the long-term impacts of these credits leading to higher inflation?
Do Tax Credits Cause Higher Inflation?
The personal tax credit, and other tax incentives, are adjusted yearly to account for inflation in Canada and other changing economic factors. By adjusting tax credits, the government ensures that Canadians are not unfairly impacted by changes in the cost of living
While there is no direct link between personal tax exemptions and inflation in Canada, it can indirectly impact inflation. When taxpayers have more money, they are more likely to purchase goods and services. This increased demand can lead to higher prices for goods and services, which is a critical factor in inflation.
What is the Impact of Inflation on Canadians?
Inflation often has a small but positive impact on the economy. A low and stable rate of inflation is typically associated with strong economic growth. However, when inflation gets too high, it can start to have negative effects on the economy.
Inflation has been a talking point in 2022, and it will not be going away soon. To address the issue, work with a professional CPA. Naicker CPA can help with tax planning, accounting, and money management.
If you have any questions about this article or business taxes, in general, or you want to make an appointment with an accounting professional at Naicker & Associates, please contact us at (604) 469-9369. We are based in Port Moody, BC.
