Here are the tax changes that will affect your pocketbook in 2024

  1/2/2024 |   SHARE
Posted in Canada Living by Vanguard Realty | Back to Main Blog Page

Canadians preparing their taxes and finances for 2024 might find a bit of help from an unexpected friend: inflation.

Though the rising cost of living tended to cool for much of 2023, still-elevated inflation from the last few years acts as a benchmark for a number of government programs and tax filing metrics.

In other words, after eating away at Canadians’ pocketbooks for a bad couple of years, inflation could pay it forward in 2024.

Here’s what’s new for tax filing, savings contributions and other financial changes in 2024.

Higher tax brackets thanks to inflation

Canadians’ marginal tax rates are set for a sizeable inflation adjustment this year.

The Canada Revenue Agency (CRA) uses the index of inflation from the previous year to determine how much tax Canadians pay on different amounts of income in the next year. The higher the limits for each bracket, the less tax Canadians will pay on the corresponding portion of their income.

Since inflation peaked at a 41-year-high in 2022 and was elevated for much of that year, it has a big impact on the 2023 tax year — the one Canadians will be filing for this coming spring.

The federal indexation factor for 2023 was set at 6.3 per cent — a substantial jump from 2.4 per cent in 2022.

After these changes, the 2023 federal tax brackets, divided by income, are as follows:

• $53,359 or less, taxed at 15 per cent
• $53,359.01 to $106,717, taxed at 20.5 per cent
• $106,717.01 to $165,430, taxed at 26 per cent
• $165,430.01 to $235,675, taxed at 29 per cent
• More than $235,675.01, tax at 33 per cent

For the upcoming 2024 tax year, this factor is set to cool slightly to 4.7 per cent.

Individual provinces have their own marginal tax rates, which may or may not be indexed to inflation.

Certain non-refundable tax credits also rise according to inflation, including, beginning in 2024, the basic personal amount (BPA) — how much a filer can earn without paying income tax. The BPA for 2024 will be $15,705 — up from $15,000 last year — though higher-income earners have this amount capped at $14,156.

Other benefits including the Canada Child Benefit and the GST/HST tax credits also rise according to inflation, but these increases take effect in July rather than January.

The 2023 federal budget introduced changes to how the alternative minimum tax is calculated, specifically targeting higher-income individuals. The Liberal government raised the AMT rate for the upcoming tax year and limited some exceptions, deductions and credits.

Changes to what you pay and what you can save

Old Age Security is also indexed to inflation, though this is done quarterly, rather than annually. For the first quarter of 2024, OAS benefit payments will rise 0.8 per cent compared to the previous three-month period.

Employment Insurance premiums also rise as of Jan. 2. Workers will now contribute $1.66 per $100 of earnings, an extra three cents over last year, while employers will provide $2.32 per $100 of pay, up four cents.

For those receiving EI payments, the maximum insurable earnings amount for 2024 is $63,200, or $668 per week.

The amount Canadians can save and invest tax-free is also rising thanks to inflation.

Contribution room for the tax-free savings account will expand by $7,000 in 2024, up from $6,500 in 2023. Also indexed to inflation, that’s the first time this amount has increased in back-to-back years.

The contribution limit for the registered retirement savings plan is $31,560 for the 2024 tax year, up from $30,780 the year before. The individual limit is always the lesser of this figure or 18 per cent of your gross income.

(A reminder that you have until Feb. 29, 2024, to make RRSP contributions to count for this upcoming tax season!)

The first-home savings account, introduced for the first time in the 2023 tax season, does not see its contribution limits change year-to-year.

Changes to Canada Pension Plan payments

Middle-income earners will start seeing a larger portion of their paycheques going toward Canada Pension Plan contributions in 2024.

A broader pension revamp began in 2019 as both the Quebec Pension Plan and CPP began phasing in enhanced benefits intended to provide more financial support for Canadians after they retire. So far, individual contributions — and the employer’s matching portion — have primarily ticked upward.

The trade-off is that Canadians will eventually receive higher payouts once they start collecting their pensions.

But as of 2024, the CPP includes a new, second earnings ceiling. For those who make more than a given amount, additional payroll deductions now apply.

Previously, everyone earning over the base amount (currently $3,500) contributes a set portion of their income, up to a maximum amount (last year’s was $66,600) that increases slightly every year. Those who are self-employed pay both the employee and employer portions.

Starting this year, the enhanced pension plan now has two earnings ceilings.

The first tier works similarly to the old system: just like before, workers contribute a set portion of their earnings to CPP, up to a government-set threshold — for 2024, it’s $68,500. Those earning that amount or less won’t see any changes to their current contribution rates.

What’s new, for anyone earning more than that amount, is a second contribution level that tops out at $73,200.

People in this group pay an additional four per cent on their second-tier earnings, or the amount they make between $68,500 and $73,200.

For 2024, that means a maximum $188 in additional payroll deductions. Overall, people earning over $73,200 will be contributing an extra $300 in 2024, compared with their previous contribution last year.

The upgraded CPP policies, which continue phasing in through next year, were designed to significantly boost retirement income for Canadians — an increase from one-quarter of their eligible income to one-third.

Source: Global News
https://globalnews.ca/news/10199422/2024-tax-changes/

Canada Living, Consumer Confidence, Tax Implications