As Canadians prepare to file their 2023 tax returns this spring, it’s crucial to be aware of several new tax measures and reporting requirements in the Canadian taxes.
These changes bring important updates to the process, affecting how individuals report their financial information.
What are the changes in Canadian taxes? Let’s take a look at the list of some major Canadian tax changes for 2024.
1. Tax Bracket Adjustment in Canadian Tax
For 2023, new federal tax brackets have been adjusted due to high inflation.
Up to $53,359, income will be taxed at 15%, $53,359-$106,716 at 20.5%, $106,717-$165,430 at 26%, $165,430-$235,675 at 29%, and income above $235,675 at 33%.
These changes mean taxpayers will pay less on a higher portion of their annual income.
2. Changes to CPP and EI Contributions in 2024
Starting January 1, many Canadians will notice a greater portion of their pay going to Canada Pension Plan (CPP) contributions. The federal government introduced a second earnings ceiling, resulting in two maximum amounts.
Previously, individuals earning over the base of $3,500 contributed a set portion of their income, reaching a gradually increasing maximum each year.
Similar to before, the initial tier involves workers contributing a fixed portion of their earnings to CPP until reaching a government-set threshold.
In 2024, those earning $68,500 or less will experience no alterations to their current contribution rates.
However, individuals with annual earnings exceeding $68,500 will enter a second contribution level, peaking at $73,200.
According to John Oakey, VP of Taxation at CPA Canada, the introduced change, combined with Employment Insurance (EI) contributions, may impose a substantial tax burden on middle-income earners and their employers.
Oakey emphasized that for employers hiring someone earning $73,200 in 2024, it would result in a 7.5% cost increase in employment taxes.
Employees contributing seven percent and employers paying 7.5 percent amounts to a combined 14.5 percent funding for CPP and EI.
John Oakey emphasized this as a substantial tax burden with significant administrative implications.
Additionally, the maximum insurable earnings ceiling for EI has increased to $63,200 in 2024, compared to $61,500 in 2023 and $60,300 in 2022, which Oakey described as a “normal course of business” increase.
3. No More Flat-Rate for Home Office Tax Cut
Due to the COVID-19 pandemic, Canada implemented a flat-rate method for home office tax deductions in 2020-2022. However, starting in 2023, this simplified approach no longer applies.
Remote workers now need to use the detailed method, involving additional documentation, to claim home office expenses on their taxes.
4. Trust Ownership Reporting is a Must To Do in 2024
Starting this spring, Canadians must disclose beneficial ownership details for trusts, including “bare trusts,” during tax filing. This might pose challenges for those unaware they’re in a trust.
Bare trustees, with legal ownership but no other responsibilities, are subject to reporting due to potential misuse.
The requirement addresses both legal and potentially illicit uses of bare trusts, reflecting the government’s focus on transparency.
5. Increase in BPA
The Basic Personal Amount (BPA) in Canada, the income not subject to federal tax, was set to reach $15,000 by 2023. After 2023, it increases with inflation, making the 2024 federal BPA $15,705.
However, high-income earners face an income test, with the full increase not applicable for those in higher tax brackets.
Top-bracket taxpayers receive the old BPA indexed to inflation, which is $14,156 for 2024. It’s important to note provincial BPAs vary by province or territory.
6. RRSP Limit Increase and TFSA Changes
For the 2023 tax year, the Registered Retirement Savings Plan (RRSP) contribution limits rose to $30,780, a $1,570 increase from the previous year.
Remember, your individual RRSP contribution is limited to 18% of your total income, and exceeding these limits may result in penalties.
The Tax-Free Savings Account (TFSA) contribution limits have risen to $7,000 in 2024, up from $6,500 in 2023. TFSA contributions can begin at age 18, with the ability to carry forward unused room from previous years.
If you’re contributing for the first time in 2024, you have $88,000 available. Be cautious of over-contributing, as penalties apply, similar to an RRSP.
7. No Expensing for Non-Compliant Short-Term Rentals
Starting in 2024, the federal government plans to deny tax expensing for non-compliant short-term rental operators. This means that as of January 1, those in banned jurisdictions or not meeting local requirements cannot claim property expenses.
While intended to discourage short-term rentals over long-term ones, there’s concern this may drive some operations underground, according to Oakey.