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Tax numbers for 2024 are in and inflation has pushed them substantially higher

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Inflation is still running high, so most of the important tax figures have been substantially increased for 2024. Here are the new tax numbers you need to know.

Inflation adjustment factor: Each year, most income tax and benefit amounts are indexed to inflation. The Canada Revenue Agency in November announced the inflation rate to be used to index the 2024 tax brackets and amounts would be 4.7 per cent.

Increases to the tax bracket thresholds and various amounts relating to non-refundable credits take effect on Jan. 1, 2024. But increases in amounts for certain benefits, such as the GST/HST credit and Canada Child Benefit, only take effect on July 1, 2024, coinciding with the beginning of the program year for these benefit payments, which are income tested and based on your net income reported on your 2023 tax return.

Tax brackets for 2024: All five federal income tax brackets for 2024 have been indexed to inflation using the 4.7 per cent rate. The new brackets are: zero to $55,867 of income (15 per cent); above $55,867 to $111,733 (20.5 per cent); above $111,733 to $173,205 (26 per cent); above $173,205 to $246,752 (29 per cent); and anything above that is taxed at 33 per cent.

Each province also has its own set of provincial tax brackets, most of which have been indexed to inflation, but using their respective provincial indexation factors.

Basic personal amount: The BPA is the amount of income an individual can earn without paying any federal tax. In December 2019, the government announced an increase of the BPA annually until it reached $15,000 in 2023, after which it will be indexed to inflation.

As a result, the increased BPA for 2024 is now $15,705, meaning you can earn up to this amount in 2024 before paying any federal income tax. For taxpayers earning above this amount, the value of the federal credit is calculated by applying the lowest federal personal income tax rate (15 per cent) to the BPA, making it worth $2,356. Because the credit is “non-refundable,” it’s only worth the maximum amount if you would have otherwise paid that much tax in the year.

But higher income-earners don’t get the full, increased BPA because there is an income test. The enhancement to the BPA is gradually reduced, on a straight-line basis, for taxpayers with net incomes above $173,205 until it has been fully phased out once a taxpayer’s income is more than $246,752 (the threshold for the top tax bracket in 2024). Taxpayers in that top bracket who lose the enhancement will still get the “old” BPA, indexed to inflation, which is $14,156 for 2024.

CPP (QPP) contributions: For 2024, employee and employer Canada Pension Plan contribution rates will remain at 5.95 per cent, but the “year’s maximum pensionable earnings,” which is also called the “first earnings ceiling,” will increase to $68,500, while the basic exemption amount remains at $3,500. This increase was calculated in accordance with CPP legislation, and takes into account the growth in average weekly wages and salaries in Canada.

This means the 2024 maximum CPP contribution will be $3,867.50 for each of the employee and employer portions. The self-employed CPP contribution rate remains at 11.9 per cent, and the maximum contribution will increase to $7,735.

Starting Jan. 1, 2024, however, a second CPP contribution rate and earnings ceiling is being introduced. Called the “year’s additional maximum pensionable earnings,” it will only affect workers whose income is above the first earnings ceiling.

The level of the second earnings ceiling is based on the value of the first earnings ceiling. For 2024, the second ceiling was set at an amount that is seven per cent higher than the first ceiling, and for 2025, the second ceiling will be set at an amount that’s 14 per cent higher than the first ceiling.

As a result, pensionable earnings between $68,500 and $73,200 in 2024 will be subject to “second CPP contributions” at an employee and employer rate of four per cent, with a maximum contribution of $188 each. The 2024 self-employed CPP2 contribution rate will be eight per cent, and the maximum self-employed contribution will be $376.

Employment insurance premiums: These are also rising, with a contribution rate for employees of 1.66 per cent (1.32 per cent for Quebec) up to a maximum contribution of $1,049.12 ($834.24 for Quebec) on 2024 maximum insurable earnings of $63,200.

TFSA limit: The 2024 tax-free savings account dollar limit will increase to $7,000 (up from $6,500). For someone who has never contributed to a TFSA, and has been a resident of Canada and at least 18 years of age since 2009, the cumulative TFSA limit will be $95,000 in 2024.

RRSP limit: The registered retirement savings plan dollar limit for 2024 is $31,560, up from $30,780 in 2023. Of course, the amount you can contribute to your RRSP in 2024 is limited to 18 per cent of your 2023 earned income, which includes (self-)employment and rental income, up to the RRSP dollar limit of $31,560, plus any unused RRSP contribution room from 2023, subject to any pension adjustments.

Old Age Security: If you receive OAS, the OAS repayment threshold is set at $90,997 for 2024, meaning your OAS will be reduced in 2024 if your taxable income is above this amount.

New Alternative Minimum Tax: Finally, keep in mind the proposed changes to the AMT system are set to take effect Jan. 1, 2024, although only draft legislation has so far been released. The AMT imposes a minimum level of tax on taxpayers who claim certain tax deductions, exemptions or credits to reduce the tax they owe to very low levels. If the amount of tax calculated under the AMT system is more than the amount of tax owing under the regular tax system, the difference is payable as AMT for the year.

The 2024 AMT changes include raising the AMT rate, increasing the AMT exemption and broadening the AMT base by limiting certain exemptions, deductions and credits that reduce taxes.

Your AMT may be higher in 2024 (compared to 2023) if your taxable income is more than $173,205, and you have certain types of income that are taxed at lower rates than ordinary income, or deductions or credits that reduce taxes payable. These include capital gains, employee stock options, Canadian dividends, unused losses carried forward from prior years, certain deductions such as interest expenses, and non-refundable tax credits like the donation tax credit.

You may be able to get ahead of these changes by realizing gains, using loss carry-forwards, exercising employee stock options or making large charitable donations, before the 2024 AMT rules come into effect.

Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Estate Planning with CIBC Private Wealth in Toronto.

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