As 2024 approaches, Canadian taxpayers can expect to see several changes that will impact their personal and corporate tax obligations. While specific provincial and territorial tax rates vary across the country, the federal government has introduced a number of updates that will be broadly applied. This article provides an overview of key federal tax adjustments taking effect in 2024 and what they could mean for your tax bill.
New Federal Income Tax Brackets
The most notable change is the indexing of federal income tax brackets to inflation for 2024. The brackets determine the tax rate applied to portions of your taxable income. For 2024, the Canada Revenue Agency (CRA) has set inflation at 4.7%, up from 6.3% in 2023, which has slightly increased the income thresholds for each bracket. The new brackets are:
- Up to $55,867 taxed at 15%
- $55,867 to $111,733 taxed at 20.5%
- $111,733 to $173,205 taxed at 26%
- $173,205 to $246,752 taxed at 29%
- Above $246,752 taxed at 33%
So while the rates remain unchanged, you will not move up to higher brackets as quickly as you would have based on 2023 indexation. This effectively results in a small federal income tax reduction for many Canadians.
Alternative Minimum Tax Updates
The government has also introduced changes to the alternative minimum tax (AMT) system, which sets a limit on tax preferences claimed by high-income earners.
For 2024, the AMT will feature:
- An increased exemption amount of $173,000 (up from $40,000)
- A flat AMT rate of 20.5% (reduced from 15%) on income above the exemption threshold
By providing higher-income earners with a more sizeable AMT exemption and reducing the preferential 15% rate, the government aims to improve perceived fairness in the tax system.
Higher Canada Pension Plan Contributions
With longer life expectancies, the government continues to adjust Canada Pension Plan (CPP) contributions and benefits to support retirees. For 2024, both employees and employers will see increased CPP contribution rates, up to 5.95% (from 5.70%) on pensionable earnings up to the new yearly maximum of $64,900 (up from $61,600 in 2023).
This means higher payroll taxes deducted from each paycheck as well as increased costs for employers. But the upside is larger CPP payouts upon retirement to help supplement other retirement income sources.
Increased Employment Insurance Premiums
To boost funding for the employment insurance (EI) program in light of ongoing economic uncertainty, EI premium rates for 2024 will rise to $1.86 per $100 of insurable earnings (up from $1.58 in 2023). The maximum annual insurable earnings will also increase slightly to $60,300 (up from $60,100).
Both employees and employers share the EI premium costs. So higher rates translate into higher payroll taxes for employees and increased staffing costs for Canadian businesses.
The Carbon carbon tax jumps to $80 Per ton
As part of Canada’s plan to reduce greenhouse gas emissions and combat climate change, the federal carbon tax will increase from its 2023 level of $65 per tonne to $80 per tonne in 2024. This tax applies to carbon-based fuels like gasoline, natural gas, propane, and coal.
The impact of the higher carbon tax will flow through to consumers in the form of increased costs for transportation, heating homes, and electricity. Some experts predict this could add hundreds of dollars to average household energy bills.
Alcohol and Digital Services Taxes Introduced
Finally, the government plans to introduce new excise taxes on alcohol purchases and a Digital Services Tax (DST) aimed at major international tech companies like Google, Facebook, and Amazon.
- The alcohol tax changes could increase prices on beer, wine, and spirits by a few percentage points.
- The proposed 3% DST would apply to companies with global revenues over €750 million and Canadian revenues over $20 million. While aimed at making digital giants pay more corporate tax, the cost impact could ultimately fall on consumers.
With taxes going up in several areas, Canadians will likely pay more overall in 2024. Careful tax planning and maximizing deductions can help minimize the tax bite. A tax professional can advise on tax reduction strategies tailored to your situation.