Several income tax changes are coming for the 2024 tax season.
There will be a higher tax bracket that will give a break for people in certain tax brackets. In 2023, anyone making $53,359 or less was taxed at 15 per cent federally. Now in 2024, the rate has increased to $55,867 or less will be taxed at 15 per cent.
Aaron Ruston with Purposed Financial said the higher tax brackets will create a bit more of a gap between each category.
“It should save people some tax overall. But again, it comes down to proper tax planning when it comes to investments and tying them in with your overall income,” Ruston said.
The amount you can contribute to Tax-Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs) will also increase in 2024.
This past year, the maximum amount you can contribute to a TFSA was $6,500. That will increase to $7,000 with all of the growth in that account coming tax-free and anything you draw out of the account will be tax-free.
Contributions for RRSPs will increase to $31,500 in 2024 or 18 per cent of your gross income for the tax year.
Ruston said, in the end, you are seeing increases from both ends.
“When it comes down to determining whether you should be putting into an RRSP or a Tax-Free Savings Account, it basically breaks down along the lines of saying, hey, what will my taxable income be when I retire,” Ruston explained.
However, in 2024 your pay cheque could be a bit smaller because of an increase in Canadian Pension Plan (CPP) contributions.
As Ruston described it, there is a “baby boomer bubble” with a lot of people at retirement age that is putting a drain on the CPP system. To overcome that, the federal government created a “second level” of CPP. This means, that after a certain amount of income, you are going to pay a bit more off your paycheque.
“What does this actually mean? Well, it actually means that we’re going to be giving more money into CPP to help pay for those down the road to make sure that CPP is hopefully still around in the future,” said Ruston.
One change that might sneak up on people is the change to bare trusts.
Bare trusts are created when an adult co-signs for a mortgage or, for example, a parent adds an adult child to the title of a property.
Canadian Revenue Agency is now requiring anyone in a bare trust to file a T3 form each year to let them know you are a co-signer on a mortgage or that you have a joint title on a property.
Ruston said this could become a disadvantage for taxpayers down the road.
“For instance, if you have a joint title with someone and you don’t live there, that is technically not your principal residence and potentially any gain from that point on should be taxed as a capital gain in the secondary person’s hand,” said Ruston.
He added that if you have a co-signer on your mortgage or a joint title on a property and it isn’t necessary, he said you should look at removing it as it could cause issues in the future.